Five Reasons to Buy Nuveen Floating Rate Income Fund

I recently purchased a starter position in the Nuveen Floating Rate Income Fund (JFR). The fund invests 65% of its assets in adjustable rate senior loans secured by specific collateral and at least 80% in secured and unsecured adjustable rate senior loans. The top three industries it owns are media, hotels/leisure and health care.

Here are some of the reasons I like JFR at the $10.00 price level.

1. Senior loans rank higher than bonds in the pecking order. Check out my previous blog post on vulture investing.
2. I think inflation (and overall interest rates) will be increasing over the next year, especially after the election. JFR owns adjustable rate securities which will not be hurt by higher rates. In fact, the discount to NAV will likely shrink as fixed income investors exchange their fixed rate debt for floating rate debt.
3. The discount to NAV is 14.3% which at an all time high. The expense ratio is 0.84% not including interest for leverage. The discount/expense ratio of 17 is quite attractive.
4. JFR is distributing 8.93% per year. JFR uses leverage of 44%, but given the current shape of the yield curve, the leverage adds significantly to the annual payout since the recent borrowing rate is only 3.68%.
5. Nuveen has announced a share repurchase of 4.7 million shares which should help to shrink the discount to NAV.

Full disclosure: I am long shares of JFR.

Comments

[fortypercent:]

this fund is down more than 20%.
i don't see how the dividend makes up for the lost of capital?
so, why put this in a portfoliuo?

2008 Aug 31 09:23 AM

[najdorf:]

I don't know much about the fund, but the loss of more than 20% is in the past. A new investor doesn't take this loss and gets the dividends. Feel free to buy high if you like that plan better though.

2008 Aug 31 01:08 PM

[realreed:]

Could be a good value play. Will check it out.

2008 Aug 31 11:37 PM

[George Spri...:]

I agree with najdorf. Many closed end funds become good buys precisely because they drop in price and the disount to NAV widens dramatically.

najdorf: Are you related to the Argentine chess grandmaster?

2008 Sep 05 10:07 PM