Weekly CEF Market Report - December 27, 2020
Deep Value, Contrarian
Seeking Alpha Analyst Since 2013
- YH Core Income Portfolio: yield ~8%
- YH Flexible Income Portfolio: yield 7.53%
- YH Taxable Core Portfolio: yield 5.24% (some tax free)
- YH Financial Advisor Model
Plus: Muni CEF Shopping List.
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.
3) Landlord Investor- spent his career as a management consultant for public sector clients at a multinational consulting firm in the DC area. He has transitioned to a new career as a full time landlord. His investment portfolio is comprised of two parts -- broad-based index funds and income plays such as preferred stock, CEFs, and REITs. He also owns individual/baby bonds which he buys on margin to boost total return. Landlord is our 'individual preferred stock' expert analyst.
Investors are still awaiting a stimulus resolution as last minute complications have arose along with significant blowback to the contents. During the holiday-shortened week, the major equity benchmarks ended mixed. Small caps and tech shares (Nasdaq) hit new highs while the Dow Jones and S&P 500 lagged a bit.
The week started off poorly with news that a new strain of the Covid virus that was more transmissible had appeared. But those losses were quickly bid up as US health officials reassured us that the new strain did not appear more deadly and it was treatable with the vaccine.
We also have signs that the latest wave of the pandemic may be subsiding as the CDC noted over 1M Americans have already been vaccinated. Moderna began distributing their vaccine on Monday as well.
The stimulus bill was in limbo again as the president announced that the stimulus checks were too small and wanted $2,000 direct payments instead of $600. However, a vote to increase the amounts failed and it appeared that the President would sign the package anyway.
Discounts resumed their tightening trend last week after a few weeks of widening. Taxable fixed income CEFs are back to -3.6%, the lowest since the end of February as the Covid crisis was just getting going. Muni CEFs were basically flat on the week with some strength at the end of the week offsetting early in the week weakness.
On the week, convertibles were huge winners on the week thanks to soaring tech stocks. NAVs were up over 1% and discounts on average tightened by 2.3%. Not only are NAVs up big but the prices are up even more closing discounts. For now, I would let what you have ride. The best bet to purchase today is AllianGI Convert & Inc 2024 Target (CBH) trading at a -6.5% discount and liquidating in 4 years. The fund has a 5.6% yield plus a tailwind yield of almost 1.8%. Not a bad deal. The NAV is well above the target already so you are unlikely to see distribution cuts as it approaches liquidation like you do with other target term funds.
Convertibles occupy most of the top 15 taxable funds as ranked by 3-month NAV total return.
MLPs, real estate, and utilities were the big losers on the week for NAVs. Mortgages were the largest losers for discounts.
Munis had a good week with NAVs up slightly (~0.1%) but with discounts finally closing some. In the last three weeks, tax loss selling pressured discounts, widening them by 1.75 points. In the last week, 0.62% of that closed.
I expect a lot of end-of-year buying to start up next week, if history is any judge. Investors will want to be back in after their tax loss harvesting. Munis especially look interesting here.
The big loser on the week was Pioneer Floating Rate (PHD) which widened out by over 5% following the tender. I re-ran my loan model and it does come out as one of the cheaper funds there. My hunch though is that the discount widens a bit more before stabilizing as people don't care to hold the stub (~14% of shares) that weren't taken. I'm going to watch it Monday and Tuesday to see what kind of price action we get. It may be a good buy if it widens out some more.
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Our stacked team includes:
1) Alpha Gen Capital - I am a career financial advisor (non-practicing) and investor. Not someone from another career doing this on the side. The AGC team and I use detailed analysis to provide safe and actionable insight without the fluff or risky ideas of most other letters. Our goal is to provide a relatively safer income stream with CEFs and mutual funds. Maybe more importantly, 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.
3) Left Banker - Is a retired individual investor. Left Banker is well known on Seeking Alpha for his analysis on closed-end funds. He is adept at analyzing rights offerings in a straight-forward manner so that investors can understand it. He has written over 320 articles- mostly on closed-end funds- and has over 11,200 followers.
4) Landlord Investor- Spent his career as a management consultant for public sector clients at a multinational consulting firm in the DC area. He has transitioned to a new career as a full time landlord. His investment portfolio is comprised of two parts -- broad-based index funds and income plays such as preferred stock, CEFs, and REITs. He also owns individual/baby bonds which he buys on margin to boost total return. Landlord is our 'individual preferred stock' expert analyst.
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