Weekly CEF Market Report - February 21, 2021

Discounts widened across the board but were focused much more heavily on the municipal and preferreds sectors. Overall, taxable CEFs saw discounts widen by nearly 30 bps. Doesn't sound like much but it's a lot in a week when you look across some 170 funds. Munis, however, widened by 76 bps which is a tremendous amount for five trading days. Clearly investors are worried about higher interest rates.

Tax-free national munis were down 1.85% on price for the week but NAVs were down less than 1.1%. Despite the drop, tax-free munis are up 1.1% in the last month with the NAV up 0.8%. The sector discount of -4.1% is right around the 50th percentile of observations for the last 7 years.

Rates are rising quickly so investors are panicking. It is my thought that rates will not be allowed to rise much more than 1.6% or 1.7%. As we noted above, rates are rising for "good reasons" but despite the reasoning be good doesn't change the typical relationship between cash flows and the discount rate used to value them.

The most common question I got this week is if I should sell my muni and preferred (longer duration or more interest rate sensitive assets)? This is a typical reaction. But being a contrarian investor and counter-cyclical allocator requires you to do the opposite of what the market's knee-jerk reactionaries are doing.

Therefor, I would want to ADD duration at some point should rates rise another 30-40 bps from here. Remember, all else being equal, a steepening yield curve where longer-maturity rates are rising and short-term rates are held steady (or even fall as we saw this week) is bullish for muni CEF distributions but bearish for NAV values. In other words, the distribution becomes healthier while your principal falls. This is because the spread you earn between the cost of the leverage (short-term rates) and the coupon earned on the underlying investments increases, boosting the earnings power of the fund. For those that are primarily concerned with the distributions, then this isn't a large concern.

Of course, this means you have to watch very closely maturity and call schedules in funds as anything that is callable or matures will be replaced with much lower yielding coupons. Rates on the long-end are still well below where they were even 18 months ago.

So the question remains, what to do?

------------------------------------------------------------------------

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

START YOUR FREE TWO WEEK TRIAL NOW

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

Three 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.

START YOUR FREE TWO WEEK TRIAL NOW