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CEF Analysis: Senior Loans Look Best Positioned

Mar. 05, 2021 7:00 AM ETARDC, B, BGT, BGX, BSL, DSU, EFF, EFR, EFT, FC, FCT, FR, FRA, FSLF, JRO, KIO, PHD, VCIF, VTA, VVR17 Comments


  • The loan space continues to see inflows which should be supportive of NAVs. As NAVs increase, they can increase leverage supporting distributions.
  • Loan funds remain one of the cheapest asset classes in the CEF spectrum with five-year z-scores that are barely positive.
  • We like KIO and ARDC which are hybrid funds (half loans, half fixed coupon bonds "HY") but they can be a little junkier.
  • Another option is that the market is giving us another opportunity to own PHD.  It moved to a -3% discount but has recently retraced a bit back to -6.4%.
  • I do much more than just articles at Yield Hunting: Alt Inc Opps: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

(This update was issued to members of Yield Hunting on Feb. 8. Please be aware that some of the data is old and our recommendations may have changed.)

We have been pushing leveraged loans as the place to be for several months now. In our latest update on the sector in mid-January titled "Floating Rate Sector Update - Rates Are Rising Which Should Shine A Light On The Sector" we noted that floating rate securities (of which constitute the majority of the senior loan space) were out of favor. However, the spread between loans and high yield bonds was widely favoring the former.

We said the funds we liked best were:

(1) Pioneer Floating Rate (PHD)

(2) Blackstone Senior Floating Rate (BSL)

(3) Blackrock Floating Rate (BGT)

(4) Vertical Capital Income (VCIF)

Today we would shift that a bit. We still like these funds but some of them have changed quite a bit since we last covered the sector. Today we would look at some of the hybrid funds which allocate to both high yield and senior loans.

(1) Ares Dynamic Credit Allocation (ARDC)

(2) KKR Income Opps (KIO)

(3) Pioneer Floating Rate

We also would think about watching or swapping or outright trimming some of the more expensive funds like:

  • First Trust Sr Floating Rate Income II (FCT)
    • Invesco Dynamic Income Opps (VTA)
    • Blackrock Debt Strategies (DSU)

Sector Update

The average price at which U.S. leveraged loans entered the secondary trading market jumped for the second consecutive month in January amid extremely strong conditions in the segment.

The average break price hit 100.34% of par in January, from 99.91 in December, according to LCD, with a wave of loan repricing transactions gripping the market as investor demand in the floating-rate asset class soared and the share of loans in the secondary priced at

Data by YCharts

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This article was written by

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Targeting 8+% Income Stream using CEFs, ETFs, Munis, Preferreds and REITs
Yield Hunting: Alternative Income Opportunities is a premium service dedicated to income investors who are searching for yield without the high risk of the equity market. We are one of the top experts in closed-end funds ("CEFs") in the country having spoken at many national conferences on how to incorporate CEFs into client portfolios. We manage four portfolios that investors can follow:

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Our team includes:

1) Alpha Gen Capital - I am a former financial advisor and investor. Not someone from another career doing this on the side. My analysis is meant to provide safe and actionable insight without the fluff or risky ideas of most other letters. My goal is to provide a relatively safer income stream with CEFs and mutual funds. We also help investors learn about investing and how to properly construct a portfolio.

2) George Spritzer - Another career financial guru who runs a registered investment advisor with a specialization in closed-end funds for individuals. George uses the following investment strategies:1) Opportunistic Closed-end fund investing: Buy CEFs at larger than normal discounts to NAV and sell them when the discounts narrow. 2) Exploit special situations: tender offers, fund terminations, fund activism, rights offerings etc.

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Analyst’s Disclosure: I am/we are long BGX, PHD, VCIF. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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