Written by Nick Ackerman, co-produced by Stanford Chemist
Investors in Tekla Healthcare Opportunities Fund (NYSE:THQ) certainly can't complain too much this year. After a volatile March, this fund rebounded significantly on both a NAV and price basis. Now the fund has reclaimed its pre-COVID pricing. For a leveraged fund, that can be a significant feat during times of sharp declines and if deleveraging takes place. For THQ, they did have the benefit of being a diversified play in the healthcare space. An area of the market that overall has done rather well for the year.
Even further, THQ recently released its fiscal year-end report. This Annual Report was for the period ending September 30th, 2020. This gives us some significant time of where the fund has come from the earlier decline this year. Net investment coverage has increased quite a bit year over year, helped by the reduction in leverage costs primarily.
The fund was repurchasing some of its shares throughout the year as well. Although it was a reduction from the amount they were repurchasing last year. It worked out to just over $2 million being repurchased. Last year they reported around $10.6 million. This can be beneficial for CEFs when they are trading at large discounts due to being accretive for current shareholders.
THQ has over $1.1 billion in total managed assets. They utilize a reasonable amount of leverage of $225 million. This works out to a leverage ratio of 20.3%. This is exactly where they set their limit of leverage to as well. They also mention that they will utilize an options strategy, but will "usually represent less than 20 percent of managed assets." An options writing strategy can be slightly defensive. The lower the overwritten portion, the lower the defensive nature - thus, with THQ it isn't too significant in the grand scheme of things.
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