Author’s notice: This article was launched to CEF/ETF Income Laboratory members on February 25, 2022. Please examine newest information earlier than investing.
“High-High-Low” Closed-End Fund Report
Quantitative screens assist to quickly slender down enticing candidates from the database of 500+ closed-end funds [CEFs] for additional due diligence and investigation. The “High-High-Low” report was impressed by a member of CEF/ETF Income Laboratory, who wrote:
Stanford, you must do a comply with up article on CEF that distribute 8%+, have 90% or extra protection and commerce below NAV. What does that appear like in right now’s world? How many funds are doing that?
What are the Z scores? I feel many buyers would have an interest who’re pushing for greater yield to establish greatest at school of aggressive funds which can be coming near overlaying dividends. Allows individuals to reevaluate danger/reward.
The “High-High-Low” report, due to this fact, screens for the next three attributes that we want to display screen for:
- High distributions (>6.5%) (i.e., 6.5% or greater yields)
- High protection (>85%) (i.e., 85% or higher protection)
- Low premium/low cost worth (<+5%) (i.e., buying and selling at a +5% premium or much less)
Note that the above thresholds are topic to alter, based mostly on the variety of eligible CEFs there are that fulfill all three of the factors. I attempt to goal for at least at the least 20 eligible funds in order that the “top 10” record truly means one thing (prime 50% of the display screen).
As for the Quality CEF report, I ought to point out some caveats about utilizing protection as a display screen. Firstly, the protection ratios are calculated utilizing earnings information from CEFConnect. No efforts have been made to independently confirm the protection ratios from the person fund annual/semi-annual reviews themselves. Secondly, having a protection ratio >90% doesn’t assure that the fund’s distribution is safe. Many funds scale back their distributions periodically according to market circumstances as a way to keep good protection. Thirdly, a protection cut-off ratio of 90% is, in the end, an arbitrary quantity. A fund with 89.9% protection will likely be excluded from the rankings, whereas funds with 90.1% protection will likely be thought of, though solely a sliver of distinction separates the 2.
The protection ratio is calculated by dividing the earnings/share quantity offered by CEFConnect on the “distributions” tab by the distribution/share. CEFData additionally supplies earnings protection numbers as effectively.
I must also notice that having each excessive yields and fewer than 100% protection (although higher than 80%) makes this a extra aggressive display screen in comparison with the Quality report (which solely selects for >100% protection). Furthermore, notice that as a result of the universe of eligible funds is fairly small, a number of the CEFs will seem in a number of prime lists, simply in a unique order…
I hope that these rankings of “high-high-low” CEFs will present fertile grounds for additional exploration.
Key to desk headings:
P/D = premium/low cost
Z = 1-year z-score
Cov = protection
1Y NAV = 1-year NAV complete return
Lev = leverage
BE = baseline expense
Data had been taken from the shut of February 24, 2022.
1. Top 10 widest “high-high-low” reductions
The following information present the ten CEFs with the widest reductions, yield >6.5% and protection >85%. Z-scores, leverage and baseline expense are proven for comparability.
|New America High-Income||(HYB)||High Yield||-11.83%||7.38%||-1.8||109%||8.1%||28%||1.20%|
|Nuveen Real Asset Inc and Grwt||(JRI)||Global Allocation||-11.26%||8.14%||-2.3||86%||15.3%||31%||1.54%|
|BrandywineGLOBAL – Global Inc Opp Fund||(BWG)||Global Income||-10.89%||10.35%||-1.0||97%||-7.4%||38%||2.46%|
|Ares Dynamic Credit Allocation Fund||(ARDC)||Senior Loans||-10.52%||8.15%||-2.6||98%||7.6%||29%||1.47%|
|BNY Mellon High Yield Strategies Fund||(DHF)||High Yield||-10.11%||8.09%||-1.8||110%||3.7%||30%||1.27%|
|Apollo Tactical Income Fund Inc.||(AIF)||High Yield||-9.49%||7.03%||-1.2||97%||5.4%||34%||2.28%|
|Barings Global Short Duration High Yield||(BGH)||High Yield||-9.49%||8.14%||-1.8||122%||12.3%||30%||2.43%|
|Western Asset High Income Opportunity||(HIO)||High Yield||-9.32%||7.91%||-2.2||90%||1.2%||0%||0.89%|
|Credit Suisse High Yield Bond Fund||(DHY)||High Yield||-9.15%||8.55%||-2.6||86%||4.9%||25%||1.30%|
|Blackstone Long-Short Credit Income||(BGX)||Senior Loans||-8.90%||6.93%||-1.7||113%||6.4%||39%||1.32%|
2. Top 10 lowest “high-high-low” z-scores
The following information present the ten CEFs with the bottom z-scores, yield >6.5%, protection >85% and premium/low cost <+5%. Leverage and baseline expense are proven for comparability.
|Doubleline Opportunistic Cred||(DBL)||Multisector Income||-3.3||-4.24%||7.68%||101%||-0.1%||18%||1.43%|
|Nuveen Pref & Income Securities||(JPS)||Preferreds||-3.3||-6.78%||7.27%||102%||3.4%||38%||1.29%|
|Nuveen Preferred & Income Term Fund||(JPI)||Preferreds||-3.2||-4.94%||7.14%||105%||5.2%||36%||1.32%|
|Cohen & Steers Ltd Duration Pref & Inc||(LDP)||Preferreds||-3.1||-6.48%||7.30%||86%||4.0%||31%||1.18%|
|Flaherty & Crumrine Preferred Income Opp||(PFO)||Preferreds||-3.1||-4.53%||7.53%||100%||4.6%||36%||1.29%|
|Credit Suisse Asset Mgmt Income||(CIK)||High Yield||-3.0||-6.73%||8.90%||90%||5.3%||24%||0.76%|
|Western Asset Global High Income||(EHI)||High Yield||-2.8||-8.25%||9.31%||103%||0.1%||33%||1.37%|
|Flah&Crum Total Return Fund||(FLC)||Preferreds||-2.7||-4.48%||7.83%||96%||5.0%||36%||0.83%|
|First Trust Inter Dur Pref & Income Fund||(FPF)||Preferreds||-2.7||-6.78%||7.24%||102%||4.8%||33%||1.33%|
|KKR Income Opportunities Fund||(KIO)||High Yield||-2.7||-7.86%||8.58%||109%||8.7%||36%||2.12%|
3. Top 10 highest “high-high-low” yields
The following information present the ten CEFs with the very best yields, protection >85% and premium/low cost <+5%. z-scores, leverage, and baseline expense are proven for comparability.
|Eagle Point Credit Company||(ECC)||Senior Loans||12.11%||3.68%||0.1||92%||25.4%||30%||0.88%|
|Stone Harbor Emg Mkts Total Income Fund||(EDI)||Emerging Market Income||11.50%||0.85%||0.3||86%||-0.6%||30%||2.09%|
|BrandywineGLOBAL – Global Inc Opp Fund||(BWG)||Global Income||10.35%||-10.89%||-1.0||97%||-7.4%||38%||2.46%|
|PIMCO High Income||(PHK)||Multisector Income||10.16%||3.48%||-1.8||94%||6.7%||42%||0.86%|
|Pioneer Diversified High Income||(HNW)||High Yield||9.99%||-7.72%||-2.1||98%||5.0%||34%||1.27%|
|PIMCO Income Strategy II||(PFN)||Multisector Income||9.86%||1.41%||-1.6||86%||4.4%||38%||1.27%|
|PIMCO Income Strategy||(PFL)||Multisector Income||9.69%||3.08%||-1.4||88%||4.9%||40%||1.36%|
|Western Asset High Income II||(HIX)||High Yield||9.50%||-2.50%||-1.2||93%||0.3%||29%||1.27%|
|Western Asset Global High Income||(EHI)||High Yield||9.31%||-8.25%||-2.8||103%||0.1%||33%||1.32%|
|Pioneer High Income||(PHT)||High Yield||9.18%||-8.57%||-2.2||107%||6.3%||33%||1.06%|
4. Top 10 greatest mixture of “high-high-low” yield and low cost
For doable purchase candidates, it’s most likely a good suggestion to contemplate each yield and low cost. Buying a CEF with each a excessive yield and low cost not solely provides you the chance to capitalize from low cost contraction, however you additionally get “free” alpha because of the distribution being paid out. This is as a result of paying out a distribution is successfully the identical as liquidating a part of the fund at NAV and returning the capital to the unitholders. I thought of a number of methods to rank CEFs by a composite metric of each yield and low cost. The easiest can be yield + low cost, nonetheless I disregarded this as a result of yields and reductions might have totally different ranges of absolute values and a sum can be biased in direction of the bigger set of values. I lastly settled on the multiplicative product, yield x low cost. This is as a result of I contemplate a CEF with 7% yield and seven% low cost to be extra fascinating than a fund with 2% yield and 12% low cost, or 12% yield and a couple of% low cost, though every pair of portions sum to 14%. Multiplying yield and low cost collectively biases in direction of funds with each excessive yield and low cost. Since low cost is unfavourable and yield is optimistic, the extra unfavourable the “DxY” metric, the higher. Only funds with >6.5% yield, >85% protection and <+5% premium/low cost are thought of.
|BrandywineGLOBAL – Global Inc Opp Fund||(BWG)||Global Income||-10.89%||10.35%||-1.0||-1.13||97%||-7.4%||38%||2.46%|
|Nuveen Real Asset Inc and Grwt||(JRI)||Global Allocation||-11.26%||8.14%||-2.3||-0.92||86%||15.3%||31%||1.54%|
|New America High-Income||(HYB)||High Yield||-11.83%||7.38%||-1.8||-0.87||109%||8.1%||28%||1.47%|
|Ares Dynamic Credit Allocation Fund||(ARDC)||Senior Loans||-10.52%||8.15%||-2.6||-0.86||98%||7.6%||29%||2.15%|
|BNY Mellon High Yield Strategies Fund||(DHF)||High Yield||-10.11%||8.09%||-1.8||-0.82||110%||3.7%||30%||1.27%|
|Pioneer High Income||(PHT)||High Yield||-8.57%||9.18%||-2.2||-0.79||107%||6.3%||33%||1.06%|
|Credit Suisse High Yield Bond Fund||(DHY)||High Yield||-9.15%||8.55%||-2.6||-0.78||86%||4.9%||25%||1.30%|
|Barings Global Short Duration High Yield||(BGH)||High Yield||-9.49%||8.14%||-1.8||-0.77||122%||12.3%||30%||1.32%|
|Pioneer Diversified High Income||(HNW)||High Yield||-7.72%||9.99%||-2.1||-0.77||98%||5.0%||34%||0.88%|
|Western Asset Global High Income||(EHI)||High Yield||-8.25%||9.31%||-2.8||-0.77||103%||0.1%||33%||1.37%|
5. Top 10 greatest mixture of “high-high-low” yield, low cost and z-score
This is my favourite metric as a result of it takes into consideration all three components that I all the time contemplate when shopping for or promoting CEFs: yield, low cost and z-score. The composite metric merely multiplies the three portions collectively. As each low cost and z-score are unfavourable whereas yield is optimistic, the extra optimistic the “DxYxZ” metric, the higher. Only funds with >7% yield, >85% protection and <+5% premium/low cost are thought of.
|Ares Dynamic Credit Allocation Fund||(ARDC)||Senior Loans||-10.52%||8.15%||-2.6||2.27||98%||7.6%||29%||1.32%|
|Western Asset Global High Income||(EHI)||High Yield||-8.25%||9.31%||-2.8||2.13||103%||0.1%||33%||1.37%|
|Nuveen Real Asset Inc and Grwt||(JRI)||Global Allocation||-11.26%||8.14%||-2.3||2.09||86%||15.3%||31%||1.47%|
|Credit Suisse High Yield Bond Fund||(DHY)||High Yield||-9.15%||8.55%||-2.6||2.07||86%||4.9%||25%||1.30%|
|BlackRock Limited Duration Income||(BLW)||Limited Duration||-8.80%||8.27%||-2.6||1.91||85%||1.2%||36%||0.91%|
|Credit Suisse Asset Mgmt Income||(CIK)||High Yield||-6.73%||8.90%||-3.0||1.82||90%||5.3%||24%||0.76%|
|KKR Income Opportunities Fund||(KIO)||High Yield||-7.86%||8.58%||-2.7||1.80||109%||8.7%||36%||1.87%|
|Pioneer High Income||(PHT)||High Yield||-8.57%||9.18%||-2.2||1.72||107%||6.3%||33%||1.06%|
|DoubleLine Income Solutions Fund||(DSL)||Global Income||-7.79%||9.11%||-2.4||1.70||123%||-1.6%||32%||1.50%|
|Western Asset High Income Opportunity||(HIO)||High Yield||-9.32%||7.91%||-2.2||1.66||90%||1.2%||0%||0.89%|
The deteriorating Russia/Ukraine scenario has introduced volatility to the markets, and with that, widening CEF reductions.
Three “buy” rated portfolio holdings which can be within the prime DxY and DxYxZ lists are:
- Ares Dynamic Credit Allocation Fund (ARDC): -10.52% low cost, 8.15% yield, -2.6 z-score, 98% protection (Tactical Income)
- New America High Income Fund (HYB): -11.83% low cost, 7.38% yield -1.8 z-score, 109% protection (Income Generator)
- Nuveen Real Asset Income and Growth Fund (JRI): -11.26% low cost, 8.14% yield, -2.3 z-score, 86% protection (Income Generator)
ARDC ranked 1st by the DxYxZ metric and 4th by DxY. JRI ranked third and 2nd in DxYxZ and DxY respectively. HYB ranked third in DxY.
We can see from the chart under that the three funds have suffered complete worth returns of between -6.48% and -13.22% over the previous 3 months, however NAV complete returns have been way more muted at round -2% to -4%.
This has been because of the CEFs’ widening reductions, which have dropped sharply over this time interval, with an accelerating decline within the final week.
As two mounted revenue and one hybrid fund, these three CEFs have additionally fared significantly better than the fairness indices such because the S&P 500 (SPY) and the Nasdaq (QQQ) over the identical timeframe.
Although JRI is a hybrid fairness/mounted revenue fund, its deal with “real assets” have offered a tailwind as power costs improve, stabilizing midstream/MLP firm costs. The prime holdings of JRI are proven under:
Except for NEE, the opposite prime 5 holdings of JRI have vastly outperformed the indices over the past three months.
Meanwhile, HYB is a high-yield bond fund whereas ARDC is a diversified credit score fund investing throughout high-yield bonds, senior loans and CLOs. Barring a recession, these two mounted revenue funds ought to proceed to offer regular revenue and we now have the chance to purchase these CEFs on a budget. Those frightened about rising charges would favor ARDC since senior loans and CLOs are comparatively insulated and should even profit from greater charges.
Hence, purchase rankings on these three funds are affirmed.
Our objective is to present constant revenue with enhanced complete returns. We obtain this by:
- (1) Identifying essentially the most worthwhile CEF and ETF alternatives.
- (2) Avoiding mismanaged or overpriced funds that may sink your portfolio.
- (3) Employing our distinctive CEF rotation technique to “double compound” your revenue.
It’s the mix of those components that has allowed our Income Generator portfolio to massively outperform our fund-of-CEFs benchmark ETF (YYY), while offering rising revenue, too (approx. 10% CAGR).
Remember, it is very easy to place collectively a high-yielding CEF portfolio, however to take action profitably is one other matter!