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BGB: Why I'm Passing On This Fully Covered 11% Yield From A Discounted Term CEF


  • Taking a quick look at BGB, a term fund in the senior loan space.
  • BGB yields 10.98% with a -12.48% discount, with 108% coverage.
  • ~1.9% annual alpha from discount contraction is outweighed by poor performance and potentially unlimited extension of fund life.
  • This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Get started today »

Author's note: This article was released to Income Lab members on May 23, 2020, and data are from that date.

In this short note, I'd like to take a quick look at Blackstone/GSO Strategic Credit Fund (NYSE:BGB), the third-ranked DxYxZ fund from our latest "Quality" Closed-End Fund Report. As of May 29, BGB sported with a discount of -12.48%, a yield of 10.98%, and a 1-year z-score of -1.3. It charges a baseline expense ratio of 2.18% and the distribution is 108% covered according to its latest annual report number. It has $556 million assets, making it a medium-sized fund.


The discount at the original time of writing of -13.64% is quite attractive vs. its 1-, 3- and 5-year averages of -7.55%, -7.41% and -8.86%, respectively. However, do note the fund has traded at wider discounts in the past, although these periods did not last long.

(Source: CEFConnect. Data as of May 23, 2020)


BGB is classified as a senior loan fund by both CEFConnect and CEFdata. According to CEFdata, BGB ranks in the bottom half of the peer group in terms of 1-, 3-, and 5-year performances.

(Source: CEFdata)


BGB holds the majority (~90%) of its assets in senior secured loans, with a small slice of high-yield bonds (9.3%) and a sprinkling of equity (1.1%).

(Source: BGB Factsheet)

The ratings distribution shows a fairly junky profile, as expected for a senior loan fund.

(Source: BGB Factsheet)

In terms of industry allocation, BGB's top five sectors are electronics/electric, business equipment and services, healthcare, building and development, and oil and gas. Apart from oil and gas, the other four sectors are overweight vs. the S&P Leveraged Loan index.

(Source: BGB Factsheet)

Here are the top 10 issuers of BGB.

(Source: BGB Factsheet)

Term structure

One of the

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