Choosing Closed-End Credit Funds Over Equity Funds: Collecting Real Cash Vs. 'Eating Your Seed Corn'

Oct. 04, 2022 2:40 PM ET, , , , , , , , , 138 Comments

Summary

  • Credit asset classes (corporate loans, high yield bonds, etc.) pay investors interest (i.e. real cash).
  • So even when all assets (stocks, bonds, etc.) are dropping in price, funds that hold credit assets keep cranking out the cash to pay distributions.
  • They don't have to "manage" their distributions, as equity funds do, during bear market periods when there are no capital gains with which to pay them.
  • So while equity funds are cannibalizing their portfolios, selling off their "core" assets to pay distributions they wish they were paying with capital gains.
  • Credit funds are paying distributions with real cash flow, not having to touch their core earning assets.
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[This article summarizes themes that we covered in earlier articles for our Inside the Income Factory members on August 8th and September 21st.]

Credit Funds vs. Equity Funds: Collecting Real Cash vs. "Eating Your Seed Corn"

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