Entering text into the input field will update the search result below

Prices Are Getting A Bit Frothy In Some Areas Of The CEF Market

Feb. 03, 2021 3:46 PM ET7 Comments
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

We sent a morning note to our members of Yield Hunting as well as members of our new multi-tier service, Diversified Income Streams.  

Yesterday, the biggest news came post-mkt with AMZN beating earnings then Jeff Bezos announcing he is stepping down as CEO in Q3, letting the CEO of AWS, Andy Jassy, take over in Q3. During the session, the risk-on rally continued. Banks (10Y back to 1.1%) and Industrials led. Despite WTI breaching $55, Energy underperformed. Defensives came for sale.

In CEFs, we had another good day yesterday with most sectors up on NAV and discounts tightening. Obviously equity focused funds did well thanks to the zooming markets. But we also saw defensive bond areas do well like munis rising 0.05% on NAV and 0.25% on discounts. High yield did well also rising 0.2% on NAV and 0.3% on discount (meaning that price moved 0.5%).

Global income, preferred, and real estate were the only “bond” sectors that saw wider discounts and it was only marginally.

We are getting to the point- especially in the last few days- where there are far more things that I find expensive and “sell worthy” than anything to buy. Finding something sensible to commit my money to has become extremely hard work. For most of 2020, it was the opposite: you could throw a dart and hit something cheap and potentially a good buy. So let’s spend some time on some sells. Not everyone is tactical and wants to sell. Some care primarily about the distribution and do not concern themselves with the underlying fund valuation. That is fine.

For example, BTZ is a long-held staple of the Yield Hunting Core Portfolio. The discount has narrowed to -4.7%, about 3 points tighter than average. The 5 year high discount is -2.8% so we have less than 2 points to go to reach that new high. The fund is a great fund but there is a lot of discount risk at -4%. I’m still holding for now but will continue to watch.

Sister fund BIT is much the same. Now at a -4.5% discount and only 0.9% from the five-year high.

ECF is now at a 5%+ premium and very much a sell in my book. I would rotate to CCD or CHI.

NSL, JRO, EFT and EFR, all in the floating rate space, have risen dramatically in price and tightened up their discounts. While these funds are at or very close to one-year highs, they have a lot of room to reach 5-year highs as many hit NAV back in late 2016/early 2017 when rates jumped following the Presidential election and money poured into loan funds- much like what is happening today. Still, the yields are lower today after large cuts so I don’t expect them to reach par. They may have a couple of more points to go but I don’t think the risk is worth it.

The chart below shows the distribution yields of the funds over the last five years. You can see they were materially higher 5 years ago over 7.5%-8.0% when today they are in the 6% and even 5% range. So I think they will struggle to see their discounts tighten more as investors won’t want a leveraged non-investment grade fund yielding less than 5.5% or 5.0%.

In loans, stick with PHD or the Blackstone/GSO funds- BSL, BGB or BGX.

In high yield, MCR, GGM, HNW, and PHT are all expensive and are good swap candidates. HIO is a good place to rotate in to along with KIO, PHK, and DHY.

In PIMCO, PCM looks a little frothy as the premium continues to rise and is now at +18%. Typically this fund trades around 10%-11% premium.

Have a great day!


Yield Hunting Premium Members received a full list of funds in each sector- which funds we like here, and which to avoid...

Yield Hunting Premium Subscription


Our strategy, simply put, is to create a portfolio of fixed income closed-end funds and alternative asset classes (such as REITs, Preferred Stock, and Baby Bonds) to create a risk managed approach to retirement income.

This approach can either be a standalone strategy (i.e- for most or all of your portfolio) or as a replacement for the failed 'fixed income' portion of your equity/ bond mix.

Either way, the goal is to create a safe income stream that meets as much of your monthly retirement expense needs as possible- thereby leaving the principle (as well as any equity positions) alone to grow unmolested. If selling is not necessary, we have effectively removed any or all sequence of returns risk from the portfolio.

We urge you to not miss this opportunity to take advantage of this really great offer. You really have nothing to lose with the 2-week free trial which locks you in at the lower rate.

This is a unique opportunity to create a fixed income closed end fund portfolio utilizing extremely rare discounts and high yielding securities. Yield Hunting can be utilized in various ways- to be the 'bond side' of your 60/40 diversified portfolio, your paycheck replacement strategy for retirement, or as a way to de-risk away from lofty equities and risky dividend stocks.

Our service utilizes Closed-End Funds, ETFs, Muni's, REITs, and Preferred Stocks to decrease risk, while still achieving a 9+% yielding portfolio.

Click here:

Here are some reviews:

Invest alongside a real portfolio manager and financial advisor with over 25 years experience managing assets- along with his dynamic team. Yield Hunting’s easy-to-follow low-maintenance models are aimed to generate a high single-digit yield for retirement income planning or fixed income allocations.

With a subscription to Yield Hunting, you get access to:

Our Three Portfolios that help create a safer and consistent 9% income stream:

  1. Core Income Portfolio This is our main model. It has about a dozen securities (almost all CEFs) with almost no equity exposure. The risk profile by NAV is less than half that of the S&P 500. It is a bit more passive than most portfolios, with only a handful of trades a month- making it very easy to follow even for the novice investor.Current yield 8.53%. 2019 return 19.56%
  2. Flexible Income Portfolio: This is our active trading portfolio. It is designed for more aggressive investors looking to maximize capital gains along with yield- looking for funds that have a high probability of mean reversion (extremely large discounts that have a good chance of closing in the short term). Current yield of 7.46% (some tax-free muni income). 2019 return of 23.14%.
  3. Taxable Income Portfolio: This portfolio takes a more tax-advantaged approach, attempting to maximize after tax gains by utilizing funds that keep an eye on tax liability.Current yield of 4.96% (mostly tax-free). Since inception (November 1, 2019) return of 2.96%.
  4. Peripheral Portfolio Database: This is aimed at diversifying the Core Portfolio by investing in equity CEFs and REITs, preferred stocks, exchange-traded baby bonds, ETFs, Mutual Funds, and other securities. It is less a full portfolio than a list of researched funds that we recommend for those that want to expand beyond the conviction list of securities but don't have the time or inclination to do the research themselves. This includes a "Safe Bucket" section detailing the highest yielding cash-plus securties where excess cash can earn upwards of 4%. The model portfolios are designed with real time pricing detailing specific "buy, hold, sell" ratings.
  5. Low Maintenance Models: This is for the pure, hands-off novice. In these models, you will assess your risk tolerance and can simply follow the model as you see fit within your risk profile.

Our premium service is organized in the following manner:

  • Monthly Newsletter - Details the current investing environment, portfolio construction techniques and advice, and a review of our model portfolios. We do offer past issues for free. Simply message us that you would like to receive a past newsletter and provide an email address to send it to.

  • Weekly Commentary - Goes through the events of the week and things to watch for in the upcoming week. This also includes performance for our holdings and the effects the current market situation will have on them.

  • Yield Hunting Review - this will take a more macro approach to the market for more long-term

  • Spotlight - Several write-ups each month, with specific analysis on securities we want to bring to our members attention where we see specific opportunities.

  • Alerts - Buy/ sell alerts on securities within the portfolio as conditions warrant

And finally....

  • Access - You are not on your own! We are available weekdays during market hours via chat, private message, and email for any and all questions or concerns. We also offer a complimentary cursory review of your portfolio, so you know you are not going it alone and always have a professional's ear whenever you need it.

Why Yield Hunting?

While our service is aimed primarily at late stage career and retired investors, the strategy can also be used to lower risk by augmenting traditional equity investing via open-end mutual funds or ETFs. This includes those who have spent many hours researching and selecting the equity side of their portfolio, but don't have the knowledge or time to do the same for the fixed income side. We use high quality institutional research to avoid distribution cuts, opportunity risk, and other pitfalls which can derail your strategy.

Our Team

Four For The Price Of One! Being one of the larger services means we have a larger budget. We believe we've assembled some of the best talent on Seeking Alpha analyzing closed-end funds.

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) 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.


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.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.