Nuveen Senior Income Fund: Rates Went Up, It Responded

Summary

• A general update of NSL since our initial article.
• A discussion of major economic changes impacted the fund.
• A look at various performance metrics comparing NSL to its peers.

Towards the end of last year I started looking at CEFs that were positioned well for any coming rate hikes. One of those funds is the Nuveen Senior Income Fund (NYSE:NSL). Since it has been more than 3 quarters since I last wrote about it, now is a great time to do an update on the fund.

What's New?

The most obvious impact to the fund is the fact that the Federal Reserve has raised interest rates.

While many fixed income investments were negatively impacted, floating rate securities were positively affected as their loans coupons began adjusting up.

Fund Updates

At the time of our initial article, the fund yielded a 7.08% distribution and traded a discount of 7.99% to its NAV. Today the fund yields a 6.93% distribution and trades at a discount of 1.01%.

Below is a chart showing the relationship between the price and NAV over the past year.

As we can see, shortly after writing my initial article, the discount to NAV quickly started to close down and even turned into a premium earlier this year.

The net result for shareholders is that even though the underlying value of the fund has stayed relatively flat, the discount to NAV essentially disappeared and shareholders were able to capture some gains.

Taking a look at the portfolio, we can see the majority of the fund is still in floating rate senior loans.

Source: Nuveen NSL Website

The major change from our initial article is that the high yield bonds allocation is up about 2%, with funds deployed from cash.

Source: Nuveen NSL Website

The top ten shows household names such as Dell and Albertsons.

Finally, we can take a look at the fund characteristics.

Source: Nuveen NSL Website

From the above stats we can see that the fund is well diversified with over 300 holdings, 17% of them being foreign.

The average effective maturity is about 5 years and the duration is very well managed at .34. Due to the nature of these funds, if there is a further rise in rates, these funds will be in a good position to take advantage of them.

Next let's take a look at how the fund has done.

Performance Update

Sine our previous article on October 20th, 2016 the fund's share price is up over 6% and achieved a total return of over 11.61%, accounting for the income distribution.

NSL data by YCharts

Year to Date the fund is flat, however is up 3.64% once you account for the distribution.

NSL data by YCharts

Taking a look at how the fund performed against its competition, we can see NSL has handily beat both the PowerShares Senior Loan ETF (BKLN) and the iShares iBoxx High Yield ETF (HYG).

NSL Total Return Price data by YCharts

NSL Total Return Price data by YCharts

Bottom Line

In my previous article, I looked at NSL as protection for a future rate hike. It seems as that is exactly how it worked out. Unlike the majority of the close end funds, the small rate hikes we have experienced have sent investors searching for yield, NSL's demand increased and the discount to NAV is virtually gone.

I am still a big fan of closed end funds and floating rate securities, however one of the main reasons for buying closed end funds, buying at a discount to NAV is no longer present in this fund.

While I do not have any specific fund replacements at the moment, I would urge NSL investors to consider alternatives until they can buy back into NSL when the "normal" discount returns. After all, investing is all about buy low, sell high.

I hope this was helpful in your search for income. Questions? Let's keep the conversation going.

For a complete look at NSL, please take a look at my initial article on the fund, NSL: Protection For The Coming Hikes? Why Senior Loans?

Looking for more income ideas? Check out our last two closed end fund articles here and here.

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Analyst’s 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.