Trade Alert: Selling PCI & JHB, Buying NHF, ARDC In Flexible Income Portfolio

Please note that the following trades refer to the new Flexible Income Portfoliothat is meant to capture the best near-term opportunities.  They do NOT refer to the Core Income Portfolio.  

1-  Sold all ~9.6% of PIMCO Dynamic Credit and Mortgage (PCI) at a blended price of $22.59 in the Flexible Portfolio.  

2-  Sold all ~4.9% of Nuveen High Income 2021 (JHB) at a blended price of $9.57 in the Flexible Portfolio.

1-  Bought ~4% position in NexPoint Strategic Opps (NHF) today at a price of $21.16 .

2- Bought ~2.5% additional position in Ares Dynamic Credit Allocation (ARDC) at a price of $14.29

3-  Bought "cash" for ~8% of the portfolio

Rationale:

We purchased a large slug of PCI during the swoon in December starting on the 19th and culminating on Christmas Eve.  Our position increased to just over 29% of our liquid portfolio when including our Core Portfolio positions.  With the rebound and the fund screaming back to near par in just 10 trading days and above par on the 17th of January, we took profits.  We are now back to our target Core position and will await for the next swoon.  

When we acquired JHB, we did so at a high 4% and low 5% discount to NAV.  The fund has rebounded- after hitting a 6% discount a month ago- and is now just under par.  The fund liquidates in less than 3 years and given the NAV is about ten cents under the liquidation price, we think they will need to start trimming the distribution to hit that target.  This could hit the share price again sending it back to the 5-6% discount range.  

We added to our position in ARDC as it remains one of our top prospects in the current environment.  Given we have a green light on the markets- at least near-term- we think it is safe to earn higher quality CLOs (as compared to very low quality CLOs found in ECC and OXLC).  ARDC trades at an attractive discount, carries a high yield that is covered, and still has a decent negative one-year z-score.  

Lastly, we started a position in NHF, a fund that is known to most members.  This is a hybrid debt and equity fund (approx 62% equity, 15% equity, and 20% pfds) that is run by a hedge fund company in Texas.  The yield is very high but the risk is elevated as well given the exposure to niche real estate opportunities.  The discount isn't as attractive as it was a month ago when it hit 20% but even at 12%, we think there may be at least 4 points of upside in the next 3-6 months.  

Please ask us any questions you may have!

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