10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
Yes, you are right re the NAV. CLOs buy in a portfolio of loans, so the contracted for principal payments are fixed (the income stream can vary, since the interest coupon floats as a spread over 3 month LIBOR.) That's the attraction of these things. No market value swings on the underlying loans. Obviously the closed end fund that owns them (OXLC) has market value swings. As I have said, the CLO basically eliminates market value volatility, but replaces it with credit volatility inasmuch as credit losses can eat up your 13-14% income stream (or even turn it negative, which would eat into your principal and NAV.) But CLOs went through the credit crash - worst defaults and losses in history - without, for the great majority of CLOs - that happening. That's what makes the asset class look pretty resilient now, to investors familiar with it or able to do their homework on it.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
That's a good catch on your part, and a good question. I don't know if it's important but the company seems to say in various places in its audits and elsewhere that it is not (i.e. that it washes out over time.) It arises from the fact that they pay dividends according to what they determine to be taxable income, which is different from GAAP income. Here is a recent statement, from a February distribution announcement:
"The Company does not anticipate at this time that any portion of the fourth quarter dividend will constitute a tax return of capital. As previously discussed in our annual report, it should also be noted that, while the Company's net investment income under generally accepted accounting principles is expected to be lower than taxable income, the Company's dividend policy is based upon taxable income, as is required for a regulated investment company."
So if it pays out its taxable income but that's greater than its GAAP income, I guess over time it will accumulate, on its GAAP books, a negative UNII.
I wish I understood this better and eventually I plan to visit the company and learn more about them and their overall strategy. What I have seen so far, and what I know independently about CLOs generally, gives me comfort that these are reputable, experienced people who operate a very unique investment fund. They pay themselves well (which is typical of those in their business) but the top guys also have big investment stakes in the fund, which gives me comfort. I'm working on an article that tries to explain CLOs in plain English and why I believe that they would make great investment vehicles for people and institutions that seek a long-term reasonably predictable "equity" return but without the scary market risk that by definition accompanies equity investments. I think - to preview my article's conclusion - the answer is that a leveraged investment in senior debt of a diversified group of companies will offer that investment opportunity. It's not without risk, but you are essentially replacing equity market risk (classic "beta" I guess you would say) with corporate credit risk. The latter you are mitigating, but not eliminating, with your senior secured position in the capital structure, since secured corporate loans historically have collected 60-70% of principal even when they default.
BDC Review Redux Part X: Stragglers And A Few Final Thoughts [View article]
Here's some info on OXLC, a closed end fund I recently came across and find very interesting and certainly unique as an investment opportunity. I plan a more detailed article in the near future but this may whet your appetite. http://seekingalpha.co...
UTG is one of my favorite holdings, as readers of my articles know. But as its price has risen reducing its discount and bringing its distribution yield down below 6%, I've rotated some of my funds out of it and into Duff & Phelps Gobal Utility Fund (DPG) and Cohen & Steers Infrastructure Fund (UTF), both of which sell at bigger discounts and have higher distributions. All three are great long-term holdings, but given the inefficiencies of the closed end fund market (where isolated movements up and down tend to occur for no discernible reason) it's possible to rotate in and out of all three to pick up additional return over time, while staying fully invested in the utility sector. (Works best for IRA investors, where short term capital gains tax considerations are not applicable.)
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
LeftBanker - I never answered your question, which is a legitimate one. As a practical matter, I don't have a lot of investments outside of IRAs, so it's somewhat moot for me whether some assets would be more efficiently held in a taxable account (where, of course, the ROC lowers the basis and increases eventual capital gains tax.) I guess I'd rather compound at an 8-10% distribution rate, even if some of it is not completely tax efficient, than receive a lower yield on a more tax efficient investment. For me, there is some real but hard to measure psychic value in watching my retirement savings compound at a higher rate, even if there may be some extra taxes to pay in the future.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
I'm flattered you're that interested. I don't publish that often, but I think if you click on the "Follow" button up on the left below my photo, you may get a message when I publish an article, if you've registered your email address with Seeking Alpha. (Is that right? Perhaps someone else can chime in on that.)
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
Thanks a lot for your comment. I hope people in general don't think of my strategy as a "money market fund alternative." While I think my strategy is pretty conservative, in terms of balancing the need for long-term diversified predictable income with a reasonable amount of market risk, it is - as you suggest - much riskier than having your money in a money market fund. Of course the big risk with anyone's keeping their money in a money market fund - or even in government bonds for that matter - is that their retirement could be a bummer because their income is so low.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
Hawmps - Thank you very much for that explanation. To summarize and put into perspective: (1) OXLC earns a gross investment return (as % of its discounted market value, not its NAV) of about 20% (2) Out of this 20%, it pays about 6% as a management fee, leaving almost 14% NET to be distributed to its shareholders (3) that 6% fee may seem like a lot (and it is a lot), but when you consider that this fund - unlike any other I know of - buys equity and junior debt in CLOs, which hold senior, secured floating-rate corporate loans and are leveraged as much as 10 or 12 to 1, then you see that the OXLC portfolio managers have to monitor a total portfolio many times the size of a normal loan participation fund. If you compare the management fee to the "virtual" size of the fund's portfolio, rather than to just the unleveraged equity in the fund (i.e. to +/- 800 million of the assets in the CLOs held, instead of to just the $80 million stated equity in the fund) then the size of the fee is not out of line with the amount of analysis and management that has to be done to support the investment.
As you say, not an investment for everyone. But for those able to appreciate how CLOs work and the power of securitization (when done right), this is a useful way for retail investors to reach a market normally unavailable to them.
How To Profit From Quantitative Easing [View article]
Another obvious way to make the Fed's easy-money policy work for you (whether you love it or hate it) is to take advantage of the cheap cost of leverage by buying leveraged closed end funds. Closed end funds, which can borrow up to 50% of the value of the fund equity (i.e. 1/3rd of the total assets of the fund), are one of the few ways retail investors can easily take advantage of cheap funding available to institutional investors (i.e. 1 to 1.5%). Investing in a fund that buys assets earning 4-5% that is leveraged with funds costing 1.5% can add a couple points to the fund's yield. For IRA investors, this is the only way to get a leveraged return.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
No that isn't the point. You had said earlier that you thought fees were deducted from your distributions, so that, in this case for example, a 13.7% distribution was actually only a 7 or 8% net distribution to shareholders after the fees. I hope we - myself and the other commenters who chimed in - have set you straight on that. Nobody denies that fees detract from the earnings of the fund, just like rent, salaries and other expenses. But a dividend or distribution is paid out AFTER the expenses are paid and the net income is determined. That was the only point at issue. It gets raised every so often by other Seeking Alpha readers, in relation to other funds. It's a red herring and it is good to finally - I hope - put it to rest.
Then click on Investor Relations, then SEC filings, then Semi-Annual report for the latest financial report. Page 7 shows their expense report, which lists the payment of all the fees. Distributions are paid after that, not just by this company but by every fund or company. When Exxon or Consolidated Edison or whatever other entity you hold sends you a dividend check, they don't deduct from it the corporate expenses of the entity - the salaries of the employees, other expenses, etc. Those expenses have already been paid for directly by the firm, out of its gross revenues. Then it pays its taxes. After that it pays out its dividends to shareholders from what is left. Oxford Lane is no different than any other company or fund in this regard.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
Thanks to everyone for their questions and comments. I think of Seeking Alpha as a group learning experience.
If you look at page seven of the semi-annual report (http://bit.ly/Y3IEPB) you'll see that fund expenses are paid for directly by the fund itself. Shareholders receive distributions without deductions for expenses or anything else for that matter. The yield would only be reduced by the amount of the expenses if shareholders were billed directly by the portfolio managers, rather than their charging the fund. But that isn't the way it works. However it is still relevant to question the amount of a fund's expenses, as Akaralph has done here, since the money not paid out as expenses would otherwise be available to pay an even higher distribution than the 13.7% that OXLC pays. Frankly I wish the fee weren't quite so high, but as I said earlier, I'm not surprised since (1) this fund is, as far as I know, the only one that makes CLO investments available to small investors like us, and (2) good CLO managers don't come cheap.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
OXLC is buying equity and junior debt in vehicles that are leveraged 10-12 times, so their $85 million in total assets actually represents about 10 times that in credit assets at risk that have to be monitored and managed. If you compare their fee to the size of the "virtual" portfolio they manage, it is not out of line with what managers of other funds make.
Besides that is the reality that "financial engineering" - in this case finding a way to leverage senior loans in a securitized vehicle so that more of the total value accrues to the equity - pays very well for those who figure out how to do it. Oxford Lane has provided a unique service in making these investments available to retail investors who generally have not had access to CLOs and the terrific returns they have afforded to hedge funds and other institutional investors. If the asset class catches on with retail investors, and more closed end CLO funds are launched, I imagine competition may bring the fees down a bit.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
"The Company does not anticipate at this time that any portion of the fourth quarter dividend will constitute a tax return of capital. As previously discussed in our annual report, it should also be noted that, while the Company's net investment income under generally accepted accounting principles is expected to be lower than taxable income, the Company's dividend policy is based upon taxable income, as is required for a regulated investment company."
So if it pays out its taxable income but that's greater than its GAAP income, I guess over time it will accumulate, on its GAAP books, a negative UNII.
I wish I understood this better and eventually I plan to visit the company and learn more about them and their overall strategy. What I have seen so far, and what I know independently about CLOs generally, gives me comfort that these are reputable, experienced people who operate a very unique investment fund. They pay themselves well (which is typical of those in their business) but the top guys also have big investment stakes in the fund, which gives me comfort. I'm working on an article that tries to explain CLOs in plain English and why I believe that they would make great investment vehicles for people and institutions that seek a long-term reasonably predictable "equity" return but without the scary market risk that by definition accompanies equity investments. I think - to preview my article's conclusion - the answer is that a leveraged investment in senior debt of a diversified group of companies will offer that investment opportunity. It's not without risk, but you are essentially replacing equity market risk (classic "beta" I guess you would say) with corporate credit risk. The latter you are mitigating, but not eliminating, with your senior secured position in the capital structure, since secured corporate loans historically have collected 60-70% of principal even when they default.
Sorry for the long-winded reply.
BDC Review Redux Part X: Stragglers And A Few Final Thoughts [View article]
http://seekingalpha.co...
3 Ways To Play Utilities [View article]
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
I never answered your question, which is a legitimate one. As a practical matter, I don't have a lot of investments outside of IRAs, so it's somewhat moot for me whether some assets would be more efficiently held in a taxable account (where, of course, the ROC lowers the basis and increases eventual capital gains tax.) I guess I'd rather compound at an 8-10% distribution rate, even if some of it is not completely tax efficient, than receive a lower yield on a more tax efficient investment. For me, there is some real but hard to measure psychic value in watching my retirement savings compound at a higher rate, even if there may be some extra taxes to pay in the future.
I enjoy and appreciate your comments.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
Thank you very much for that explanation. To summarize and put into perspective:
(1) OXLC earns a gross investment return (as % of its discounted market value, not its NAV) of about 20%
(2) Out of this 20%, it pays about 6% as a management fee, leaving almost 14% NET to be distributed to its shareholders
(3) that 6% fee may seem like a lot (and it is a lot), but when you consider that this fund - unlike any other I know of - buys equity and junior debt in CLOs, which hold senior, secured floating-rate corporate loans and are leveraged as much as 10 or 12 to 1, then you see that the OXLC portfolio managers have to monitor a total portfolio many times the size of a normal loan participation fund. If you compare the management fee to the "virtual" size of the fund's portfolio, rather than to just the unleveraged equity in the fund (i.e. to +/- 800 million of the assets in the CLOs held, instead of to just the $80 million stated equity in the fund) then the size of the fee is not out of line with the amount of analysis and management that has to be done to support the investment.
As you say, not an investment for everyone. But for those able to appreciate how CLOs work and the power of securitization (when done right), this is a useful way for retail investors to reach a market normally unavailable to them.
How To Profit From Quantitative Easing [View article]
For more info see article "Closed End Funds' Best Friend: Ben Bernanke": http://seekingalpha.co...
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
http://bit.ly/14MntbR
Then click on Investor Relations, then SEC filings, then Semi-Annual report for the latest financial report. Page 7 shows their expense report, which lists the payment of all the fees. Distributions are paid after that, not just by this company but by every fund or company. When Exxon or Consolidated Edison or whatever other entity you hold sends you a dividend check, they don't deduct from it the corporate expenses of the entity - the salaries of the employees, other expenses, etc. Those expenses have already been paid for directly by the firm, out of its gross revenues. Then it pays its taxes. After that it pays out its dividends to shareholders from what is left. Oxford Lane is no different than any other company or fund in this regard.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
If you look at page seven of the semi-annual report (http://bit.ly/Y3IEPB) you'll see that fund expenses are paid for directly by the fund itself. Shareholders receive distributions without deductions for expenses or anything else for that matter. The yield would only be reduced by the amount of the expenses if shareholders were billed directly by the portfolio managers, rather than their charging the fund. But that isn't the way it works. However it is still relevant to question the amount of a fund's expenses, as Akaralph has done here, since the money not paid out as expenses would otherwise be available to pay an even higher distribution than the 13.7% that OXLC pays. Frankly I wish the fee weren't quite so high, but as I said earlier, I'm not surprised since (1) this fund is, as far as I know, the only one that makes CLO investments available to small investors like us, and (2) good CLO managers don't come cheap.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
VTA's distribution is 6.6%, about half of OXLC's. They are totally different types of funds.
10% Return In Q1 For 'Savvy Senior' IRA - Now What Do We Do? [View article]
Besides that is the reality that "financial engineering" - in this case finding a way to leverage senior loans in a securitized vehicle so that more of the total value accrues to the equity - pays very well for those who figure out how to do it. Oxford Lane has provided a unique service in making these investments available to retail investors who generally have not had access to CLOs and the terrific returns they have afforded to hedge funds and other institutional investors. If the asset class catches on with retail investors, and more closed end CLO funds are launched, I imagine competition may bring the fees down a bit.