The fund offers direct pure-play exposure to the non-agency MBS space with a nice and fairly lower risk 5%-plus yield.
While non-agency MBS is not as safe as agency from a credit perspective, it's much safer from an interest rate risk perspective.
Today's non-agency MBS is FAR different than it was over 10 years ago and the large loan-to-values are a nice downside cushion.
The trade, unfortunately, is starting to wind down with likely only a few years left of the legacy issues.
How have NAVs performed since the FOMC meeting in late July when we undertook a paradigm shift in the bond markets?
The rate decline resulted in REITs, municipal bonds, and preferred stocks doing very well.
Since the writing of this article, the trade has shifted again back to the reflation trade.
We do not think this will last! So get your shopping lists ready!!
August saw a return to volatility which curtailed further discount tightening in the CEF market.
We saw a slew of cuts- primarily in munis again- as interest rates continue to fall putting pressure on earnings.
In the last 30 days, only 35 funds saw NAV performance greater than +1.0% while there were 204 funds that fell by -1.0% or more.
Being choosy is extremely important in this environment. As investors, we tend to get programmed as to which funds are "good" and which are "bad" but those labels can change.
NAVs across most taxable bond funds managed by PIMCO had an allocation to Argentinian bonds.
They also had some exposure to the Argentinian peso which was devalued substantially in early August.
Coverage ratios and UNII jumped significantly as the funds realized embedded gains. But at what expense?
The muni funds continue to shed UNII and trade at rich valuations.
Taxable munis remain a great place to capture a relatively safe moderate yield.
GBAB is one of the safest 6.2% yielding securities in the markets today. Many investors are loathe to pay a premium for a fund, which is understandable.
However, superior asset comes at a cost.
For now, it is nearly impossible to find a safer and more secure 6%+ yielding fund.
The muni sector has been on fire since late last year as investors seek both safety and tax efficiency.
The technicals of this muni market are probably the most favorable they have ever been, thanks to the SALT cap and lower supply.
Interest rates have fallen, making relatively longer-duration munis rise in value, but that presents additional risks that need to be quantified.
This is one of our current muni picks.
Activists have attacked this orphan fund - and for good reason, given the antics by management.
There is nothing special about this fund which simply holds a bunch of individual mortgage loans that it attempts to buy at a discount on the secondary market.
Proxies have gone out for the activist proposals which could force a liquidation eventually.
Closed-end funds continue to show tightening discounts as investors no longer see rising rates as an overhang to the asset type.
We go through some of the corporate actions that are slicing their way through and providing some opportunities.
The statistics pages can be useful in identifying opportunities. We go through this each week with our members.
Performance continues to do well despite some recent sluggishness in the NAV growth.
The muni funds have seen the greatest appreciation, although it is not likely to stave off pending distribution cuts.
The majority taxables are still not back to even compared to ten months ago.
We detail why we think the NAV is the best indicator of the performance of the taxable funds.
Our income allocation has continued to perform well as we rebound from the fourth quarter swoon last year.
While we are up 17%+ YTD, we do think the back half of the year could be a tough one and possible weigh on returns.
We discuss our strategy and vision for our service.
Alpha Gen Capital discusses his closed-end fund allocation strategy and how he is positioning his portfolio in anticipation of the next recession.
Mortgage bonds are on area that it is bullish on at present, a contrarian view in light of what happened during the last recession.
Investing success depends largely on minimizing mistakes and taking returns where they come. Income can greatly enhance success.
Floating rate remains out of favor but the contrarian in us says the selling is overdone.
In the CEF space, floaters remain one of the only subsectors of value.
We think the best funds are: ARDC, AIF, and FRA.
Yield globally plummeted with the amount of negative-yielding debt reaching a record $15T.
Distribution cuts were relatively mild and infrequent this month with just one double-digit cutter.
This drop in yields could cause closed-end fund yields to look relatively more attractive and mean valuations could reach levels we saw in 2012.
What that means for the CEF investor is no more increases in leverage costs. In fact, we could see leverage costs very quickly helping support distributions.
We discuss one of our newest opportunistic plays, Vertical Capital Income Fund (VCIF).
Each month, the EPS and UNII values comes on like clockwork on the 15th. We pour over it to decipher if a distribution cut is in the cards.
On July 1st, PIMCO, as usual, released its monthly distribution announcement showing that PCI increased the distribution by 6%.
The increase removes the largest overhang to the fund - a distribution cut.
We have adjusted our buy under and sell over prices on our marketplace service.
We conclude our midyear Marketplace roundtable series with a look at dividend and income investing.
In theory, this is the area most directly impacted by a rate environment that has shifted dramatically in the past 6-12 months.
Our authors talk about how they are dealing with that shift and what they're finding interesting in today's market.
The Core Income Portfolio is born creating a high income stream to provide monthly cash flow- i.e. a synthetic annuity.
We look at using a one-fund solution vs. a diversified portfolio of funds to dampen volatility.
This kind of portfolio can be a great compliment to a dividend equity strategy or individual bond sleeve.
An annuity can provide safety and be a great way to generate base income in your retirement plan.
Annuities get a bad rap but there's really no difference between it and a traditional defined benefit pension which tends to be loved.
For those wanting to avoid the loss of principal but still creating an income stream, closed-end funds can be a great tool.
For the right investor who can handle volatility, a diversified portfolio of CEFs complimenting other portfolios pieces can provide an annuity-like income stream.
While there is volatility in this strategy, even if your principal falls, it's still an improvement to the annuity which provides similar income at a loss of principal.
CEFs continue to trade tight to their historical discount averages, thanks to lower equity volatility and a shift in the interest rate environment.
Investors in CEFs today need to understand that they are basically short a lot of volatility given the current valuations.
BlackRock cut across most of their muni fund complex, some of which were very strange given the strong coverage and positive UNII balances.
One of our top convergence ideas has played out nicely.
We issued a sell alert to our members on it.
The report is a good illustration on how we manage and select muni CEFs.
Blackstone/GSO runs a suite of three high-quality funds that need to be on every CEF investor's radar.
One fund now trades close to par while the other is at a nice discount, though the market has equalized the yields.
The funds utilize a dynamic distribution policy and issue their announcement every three months. They recently raised that distribution mid single digits.
If rates do eventually head back up, they will be a good hedge against those headwinds.
Munis have been one of the best-performing asset classes this year while providing that downside protection that we expect from one of the safest asset classes.
Portfolio construction is very important to us, so understanding the risks of each position and how it relates to the portfolio as a whole is extremely critical.
Our analysis goes well beyond looking for negative z-scores or the highest yielding funds which most retail investors in the space use as deciding factors.
We have a muni-only Core Income Portfolio that shows our Top Conviction funds - those that have the characteristics mentioned in this report that are most favorable.
Many investors are avoiding equities for fear that the bull market is ending or because of their focus on yield/income.
Eaton Vance has a half dozen equity-option CEFs that offer fixed income CEF yields but some growth optionality from equities.
The best investor for the option-income strategy of funds is one who wants to maintain equity exposure (preferably for the long term) while generating a higher income.
Overall, the Eaton Vance option-income funds have solid long-term track records and quality management.
The closed-end fund marketplace was largely immune from the broader equity selling with discounts largely unchanged in May.
While discounts held steady, NAVs are starting to roll over, thanks to widening credit spreads.
The widening credit spreads could eventually lead to wider discounts.
We run through the optimal mix of withdrawals for your retirement accounts.
The best means to minimize taxes and maximize retirement.
Traditional IRAs, Roth IRAs, 401ks, brokerages, and all the rest.
Closed-end funds continue to gain in popularity as investors hunt for yield in a yield-less world.
The fourth quarter of last year surprised many CEF newbies to the realization that these funds have more risk than thought.
Adjusting your mindset to look at widening discounts (especially when accompanied by rising NAVs) as opportunities rather than risk can significantly improve your outcomes.
We work hard to "look through" the NAV of the fund to identify the risks that are likely to drive its performance.
We give an example with NMZ.
The Core Income Portfolio currently yields 8% and still has a nice average discount to NAV.
From a risk perspective, we avoid many of the more volatile areas of the market, including MLPs, equities, and CLOs.
We update readers on our process and strategy.
One of the biggest issues we see with members is where they place certain investments.
While it may sound simple (place least tax efficient in qualified accounts), it can be more complex as expected rates of returns need to be considered.
By making portfolios more tax efficient, you can potentially improve portfolio's annual returns by up to 50 bps according to some studies
Distribution cuts subsided in the month with the largest being *just* 8%.
We run through some April CEF stats.
We provide some high-level commentary.
Of the nine munis funds, four saw decreasing UNII while the other five were flat on the month.
In taxables, PCN, PCI, PDI saw positive and increasing UNII. RCS had negative but increasing UNII.
Taxable coverage ratios showed six falling and five increasing for an average ratio of 71.5%.
The funds remain a core part of the strategy though they are shifting a bit in composition. It remains to be seen if this is a permanent shift or a temporary one.
We should have more color on this in the next few weeks as we meet with PIMCO management and some other experts in the space.
This is the second in what we are now making a bi-monthly series of reports that look at after-tax yield.
We will be launching a tax sensitive portfolio / list for members to use in their non-qualified accounts.
We take a closer look at EXG.
Disclaimer - Nothing on this site should be considered as investment advice or trading recommendation. See full Terms of Service Below
© 2018 by Alpha Gen Capital