This trade has been open 124 days.

music selection:  “Behind The Wall Of Sleep” — The Smithereens

First a little cleanup.  I have been working to gracefully close my calendar spreads as they were performing, on average, around break even – with a lot of volatility, while tying up capital.  My last calendar in TOT closed today.  I originally purchased the 55 strike Dec/Feb calendar in TOT for 1.05 a share on 28OCT2019.  I closed today for 1.10.  The trade was in force for 46 days and yielded about 5% or 41% annualized.

I intend to open two new net debit spreads per week each Monday (one bullish, one bearish.)  At the same time, I am closing my old covered call trades when I can get out at break even or better.   Five such trades are still open and two appear “likely” to close with shares called away at my entry price or better on the 20th.  A third is a maybe for closing the 20th.  The other two may be tying up capital for some time.  I keep the rest of my portfolio in individual distressed bonds or in closed end funds.  My most recent CEF purchase was JQC.  I’m updating that today.

Nuveen Credit Strategies Income Fund (JQC) is a closed end fund that is invested in a mix of preferred shares, fixed income, and convertible debt.  It trades at a 7.79% discount to NAV and yields 16.65% annually.  I originally purchased the fund on 12AUG2019 for 7.67 a share.  I may have over paid a little as share price has declined a few percent since then.  Current price is 7.46 a share or a 2.74% decrease over 124 days.  I have collected 52 cents in distributions bringing my net return to 4.01% or 11.84% annualized.  This is a little disappointing as I was targeting 12% annualized here.  It is still performing well for debt rather than equity and should hold up well in the event of a market crash.  I have no plans to sell at this time.

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Update Nuveen Credit Strategies Income Fund (JQC)

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2 thoughts on “Update Nuveen Credit Strategies Income Fund (JQC)

  • December 17, 2019 at 2:54 am
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    JQC charges 2.08% interest expense to attain about 38.63% leverage. That would mean they are paying about (1/.3863).0208 =5.38% for loans they use to buy preferred stocks, convertibles, and debts, right?

    My first question is how much of a profit are they earning with this leverage? PFF (preferreds) for example yields 6.04%. CWB (convertibles) yields 4.18%. A portfolio of those couldn’t yield much higher than JQC’s interest expense.

    Interactive Brokers has a margin rate for their “LITE” accounts of 4.05%. Why not use IB’s margin to load up on PFF and milk the 2% spread between the dividend and margin rate instead of buying JQC?

    Reply
    • December 17, 2019 at 4:19 pm
      Permalink

      Chris,

      IB has very attractive margin rates. But they are a variable rate. JQC almost certainly has a fixed rate agreement. A variable rate could force them to dump their bonds into a rising rate environment, thus locking in losses that would “expire” at maturity.

      More important here is this is an actively managed fund and not a passive fund like PFF or CWB. Active managed funds do terribly in the equity markets. They do really very well in fixed income markets. The large players are all highly restricted in what they can buy and sell. These small CEFs have management that can “go anywhere” and scoop up the deals that the big boys would love to have but are legally prohibited from buying. In short, there are persistent market inefficiencies when it comes to fixed income that skilled managers can exploit. JQC is a Nuveen product and I have a lot of respect for their active managers. I’m monitoring the situation and will sell if it becomes clear they will not outperform a bond index.

      Reply

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