For those of you unfamiliar with this series of articles, they're basically an approximate five-year profit and loss review of a number of Exchange-Traded Funds (ETFs) and Closed-End Funds (CEFs) that primarily invest in and hopefully profit from dividends earned from their investments in preferred securities, which they then distribute to shareholders. This link will provide you the information necessary to fully appreciate and understand the following article, the differences inherent in CEFs and ETFs, and the remaining articles of this series. It will also serve to eliminate lots of reading redundancy for my regular readers.
This report concerns Nuveen Preferred Income Opportunities Fund (JPC), hence the following description and chart:
Management fees total 1.16%, other unnamed fees equal another .07%, and interest costs of their leverage .49% brings the total average cost to 1.72%, which appears to be average for closed-end funds of this type. Transaction costs include commissions when securities are bought or sold, and any applicable taxes if held in a taxable account. The more active the trading account, the higher these fees. From my research thus far, this appears to be standard operating procedure for funds such as this.
Its effective leverage is just under 29%, which annualized, costs the fund approximately 1.31%. The inception date of this fund was 3/26/03, at which time its NAV was $14.33 and its inception price was $15.00/share. Today's closing price was $10.25 and its NAV $10.40. Which translates to a .99% discount were you to buy in at $10.25.
From the following list of its top 10 holdings, it's apparent that this fund primarily invests in the preferreds of Banks, Insurance and REIT's, and a smattering of capital markets and food.
Approximately one half the holdings in this fund is composed of lower grade paper, and much of the remainder made up of below investment grade paper, most of all of it debt.
Now for that five-year performance chart, even though it IPO'd on 3/26/03:
It displays JPC's performance over the past five years. Although volatile, this fund has performed nicely during this time, appreciating in value from $8.54 on 7/25/11 to its current $10.25, a gain of $1.71. However, from inception until the present, this fund has decreased in value from $15.00 to its current price of $10.25, a $4.75 decrease in value. Although many of my followers think its fair and most relevant to only review the past five years, others believe otherwise and want me to cite its performance from inception. Consequently, I've decided to divide this baby and give each of you half. However, I'm only going to work the numbers for the past five years because I agree that the past five-year span is most relevant, and I ran out of fingers and toes counting backwards to inception.
JPC has distributed $4.29* for each share invested at an approximate price of $15.00 on 7/25/11.
*I got the dividend distribution figures from DividendInvestor.com.
- 4.3533**/15.00 = 29.02% yield over 5 years.
- 29.02/5 = 5.80% yield per year.
** To simplify, I took the liberty of adding one additional payment of .0633 to the five year total of dividends disbursed, which in all likelihood will remain constant.
Therefore, if my math is correct, the investor would have profited by a yearly dividend yield of 5.80% over the past five years. However, higher since the price over the past five years appreciated by $2.58:
- 4.3533 + 1.71 = 6.0633/15.00 = 40.42% over 5 years
- 40.42/5 = 8.08% per year yield.
A nice profit over the past 5 years; however, utilizing our DRIP calculator, a $10,000 investment over this time would now be worth $17,077.68 or an 11.33% annually compounded gain, considerably more than the unDRIPed gain, which leads me to believe that share purchases were made under the most auspicious circumstances. Considering its amount of leverage, 29.00%, this fund entails an increased amount of leverage risk, consequently, investors must decide whether the reward is worth the risk. The decision to invest in this fund should be taken with this knowledge and according to the individual investor's tolerance for risk.
For those of you interested in this fund, notice that at this price of $10.25, you will be buying it at a slight discount of .99% because its NAV is currently $10.40. Furthermore, my research has shown that this fund normally trades at a much larger discount, averaging over the past 52 weeks -7.34%. Consequently, strictly from timing, I would not invest in this fund at this moment because it's very likely with patience, it could be bought at a nice discount. Past is prologue.
The following is the list of funds I have and will investigate to give you a clear picture how each has performed over the past five years. Initially, I had decided to judge each over the entire life of the fund, but was dissuaded by a number of followers who advised that the results would be unfairly skewed by the recessionary contraction of 2008-9. Here's that list of funds, which has grown considerably as a result of additions you requested: iShares U.S. Preferred Stock (PFF), PowerShares Preferred Portfolio ETF (PGX), Global X SuperIncome Preferred (SPPF), PowerShares Financial Preferred Portfolio (PGF), VanEck Vectors Preferred Securities ex Financials (PFXF), SPDR Wells Fargo Preferred Stock ETF (PSK), PowerShares Variable Rate Preferred Portfolio (VRP), iShares International Preferred Stock ETF (IPFF), John Hancock Preferred Income Fund II (NYSE:HPF), First Trust Preferred Securities and Income ETF (NYSEARCA:FPE), Flaherty & Crumrine/Claymore Total Return Fund (FLC), Flaherty & Crumrine/Claymore Preferred Securities Income Fund (FFC), Flaherty & Crumrine Dynamic Preferred and Income Fund, Inc. (DFP) and Flaherty & Crumrine Preferred Income Opportunity Fund (PFO), John Hancock Preferred Income Fund III , Nuveen Preferred Income Opportunities Fund (NYSE:JPC), John Hancock Preferred Income Fund (NYSE:HPI), Clough Global Opportunities Fund (GLO), First Trust Strategic High Income Fund II (FHY), First Trust High Income Long/Short Fund (FSD), Prudential Global Short Duration High Yield Fund (GHY), ProShares UltraShort S&P 500 (SDS), First Trust Intermediate Duration Preferred & Income Fund (NYSE:FPF), Cohen & Steers Select Preferred and Income Fund, Inc. (NYSE:PSF). Virtus Global Multi-Sector Income Fund (NYSE:VGI), DNP Select Income Fund (NYSE:DNP), John Hancock Premium Dividend Fund (NYSE:PDT), Cohen & Steers Infrastructure Fund (NYSE:UTF), and Flaherty & Crumrine Preferred Income Fund (NYSE:PFD).
Below is a screenshot taken from my IB platform I populated to keep you apprised of the order of my reviews, and as a bonus the funds' closing prices for the week.
Notice, the 2015 dividends are placed just to the right of the fund symbols. To the right of that are the trade prices at the close of 7/19/16. Of further interest, at the far right of the screen are the prices of the 13-week highs and lows of each fund.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Because this is a series of fund performance studies, although each is an entirely different study, the method I utilize to arrive at each conclusion is quite similar, and more effective because by using the same parameters, I am comparing apple to apples, not apples to pears.