How To Get CEF Yields Without CEF Problems

Seeking AlphaFixed IncomeHow To Get CEF Yields Without CEF ProblemsAug. 21, 2020 12:35 AM ET|| Includes: ECC, ECCB, ECCX, ECCY, HFRO, HFRO.PA, PBB, PBC, PBY, PSECby: ADS AnalyticsADS Analytics Systematic IncomeIncome investing across CEFs, ETFs, preferreds, baby bonds and more.SummaryWith the market entering its sixth month of recovery and valuations becoming ever more expensive, investors may be looking how to bulletproof their portfolios.
Income investors who are primarily or exclusively invested in CEFs should take a look at senior securities.
Preferred stocks and baby bonds do not have some of the disadvantages of CEFs such as forced deleveraging, frequent distribution cuts, high fees, drawdowns driven by discount widening and others.
We highlight HFRO.PA, ECCY and PBY.
As the market enters its sixth month of recovery with valuations moving ever higher, CEF investors may be thinking of ways to bulletproof their portfolio in case the market hits another speed bump. Because CEFs tend to boast some of the highest yields across the investment space, many investors tend to allocate primarily or exclusively to these products. However, this misses out on the advantages that other investment products have over CEFs that do not necessarily require significant yield sacrifice. In this article, we discuss some of the advantages of senior securities such as preferred stocks and baby bonds over closed-end funds.
We also highlight a number of senior securities such as:
Highland Income Fund 5.375% Series A (HFRO.PA) Eagle Point Credit Co. 6.75% Notes (ECCY) Prospect Capital Corp. 6.25% Notes (PBY) These advantages overall make senior securities more defensive and resilient over CEFs, all else equal. This is why our income portfolios have significant allocations to preferreds and baby bonds.
High Fees
The range of CEF management fees is very wide from levels comparable to those of passive ETFs to 4-5% such as those of CLO equity funds. CEF fee structure can... Read more