2 Term Dated CEFs In Our Portfolios Showing Opportunity | Christmas Sale Still On
ETF investing, CEFs, Dividend Investing, Portfolio Strategy
Seeking Alpha Analyst Since 2014
CEF/ETF Income Laboratory is a premium newsletter on Seeking Alpha that is focused on researching profitable income and arbitrage ideas with closed-end funds (CEFs) and exchange-traded funds (ETFs). We manage model safe and reliable 8%-yielding fund portfolios that have beaten the market in order to make income investing easy for you. Check us out to see why one subscriber calls us a "one-stop shop for CEF research.”
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1) Stanford Chemist: I am a scientific researcher by training who has taken up a passionate interest in investing. I provide fresh, agenda-free insight and analysis that you won't find on Wall Street! My ultimate goal is to provide analysis, research and evidence-based ways of generating profitable investing outcomes with CEFs and ETFs. My guiding philosophy is to help teach members not "what to think", but "how to think".
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3) Juan de la Hoz: Juan has previously worked as a fixed income trader, financial analyst, operations analyst, and economics professor in Canada and Colombia. He has hands-on experience analyzing, trading, and negotiating fixed-income securities, including bonds, money markets, and interbank trade financing, across markets and currencies. He is the "ETF Expert" of the CEF/ETF Income Laboratory, and enjoys researching strategies for income investors to increase their returns while lowering risk.
4) Dividend Seeker: Dividend Seeker began investing, as well as his career in Financial Services, in 2008, at the height of the market crash. This experience gave him a lot of perspective in a short period of time, and has helped shape his investment strategy today. He follows the markets passionately, investing mostly in sector ETFs, fixed-income CEFs, gold, and municipal bonds. He has worked in the Insurance industry in Funds Management, helping to direct conservative investments for claims reserves. After a few years, he moved in to the Banking industry, where he worked as a junior equity and currency analyst. Most recently, he took on an Audit role, supervising BSA/AML Compliance teams for one of the largest banks in the world. He has both a Bachelors and MBA in Finance. He is the "Macro Expert" of the CEF/ETF Income Laboratory.
- Term date CEFs offer alpha in the form of discount contraction.
- We highlight two opportunities for our members, one aggressive pick and one conservative pick.
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We recently highlighted two term dated funds to our members of the CEF/ETF Income Laboratory - we are sharing these ideas early before the public release of the full articles. We discuss many opportunities to capitalize on at the CEF/ETF Income Laboratory. Consider giving us a try today!
The Miller/Howard High Income Equity Fund (HIE)
-8.69% Discount - Anticipated Term Date November 24th, 2024
This fund has certainly had a rocky 2020. The pandemic had hit the fund particularly hard as it was heavier in financials and had exposure to the energy sector. Though investors more inclined to take some risks could be staring at a huge opportunity. The fund is currently discounted at over 8% of its NAV - yet, is set to terminate in a few years. That should result in an investor realizing this discount over the next 3 year period; with the kicker of potentially outperforming 'value' stocks. Plus, collecting monthly income along the way.
The fund is classified as a "diversified, closed-end management investment company whose primary objective is to seek a high level of current income with capital appreciation as a secondary objective."
They intend to invest "at least 80% of its total assets in dividend or distribution paying equity securities of US companies and non-US companies traded on US exchanges. The Fund will seek to invest in securities that the Investment Advisor considers to be financially strong with reliable earnings, high dividend or distribution yields and rising dividend growth. The Fund may invest up to 25% in Master Limited Partnerships ([MLPs]), generally in the energy sector. The Fund intends to engage in an options writing strategy consisting of writing put options on securities already held in its portfolio or securities that are candidates for inclusion in its portfolio. It may also engage in covered call writing strategies and it may buy put and call options. The Fund may write covered put and call options up to a notional amount of 20% of the Fund’s total assets."
This fund has a lot going on. They have an option writing strategy, and they also utilize leverage on the fund. The larger exposure and focus on dividends/distributions does mean they leaned heavily in the energy space for several years. That has been a struggle, to say the least. Now, it appears they are repositioning their portfolio into other sectors as they ease off energy a bit. Still, between financials and energy, this represents 35.6% of the portfolio. Financials and energy being two of the primary 'value' area of the market.
HIE is a holding in our more aggressive Tactical Income-100 portfolio. We initially purchased the fund at a near -20% discount in April, and its up +36% in our portfolio since then. Want our latest picks as soon as they are released to members? Join us on a 2-week free trial here.
Western Asset High Yield Defined Opportunity Fund Inc (HYI)
-5.07% Discount - Anticipated Term Date September 30th, 2025.
HYI can be an attractive option for investors that want a monthly paying, high-yield focused closed-end fund. This fund can be appropriate for those that might not want to deal with the leverage of other high-yield options out there as they utilize no leverage. Keeping in mind that it is still a high-yield fund, with some exposure to emerging markets - those two focuses can cause their own volatility without the need for leverage adding more. Yet, remains more attractive than a comparable ETF as an investor can take advantage of discounts/premiums that naturally happen in CEFs.
This fund is expected to liquidate "on or about September 30th, 2025" as it is structured as a term dated fund. Don't confuse this with a target-term fund though, as they have no mandate to try to return the original NAV back to shareholders. There has been a lot of discussion with target term funds lately, so wanted to make that important distinction.
When this fund launched in 2010 it wasn't standard to include a change to a perpetual fund. So they have no provision in their Prospectus to allow for a tender offer of 100% of shares at 100% of NAV. That being said, the wording for extending out the termination date if they feel like it wouldn't be in the best interest of shareholders at that time is still present. However, they don't specify 6 months or a year extension as is typical for most term funds.
HYI seeks "high income, with capital appreciation as a secondary option." They "provide a non-leveraged high-yield corporate fixed-income portfolio."
HYI is a holding in our more conservative Income Generator portfolio. Since we purchased the fund last year, its raised its distribution three times! Tired of seeing dividend cuts from your CEF positions? Our 8%-yielding Income Generator portfolio has grown its income by +12% per year since inception, without adding new capital to the portfolio or stretching for yield. Join us on a 2-week free trial here.
Exciting Announcement: The Income Lab Has Just Added Another Expert, Dividend Seeker!
Dividend Seeker: Dividend Seeker began investing, as well as his career in Financial Services, in 2008, at the height of the market crash. This experience gave him a lot of perspective in a short period of time, and has helped shape his investment strategy today. He follows the markets passionately, investing mostly in sector ETFs, fixed-income CEFs, gold, and municipal bonds. He has worked in the Insurance industry in Funds Management, helping to direct conservative investments for claims reserves. After a few years, he moved in to the Banking industry, where he worked as a junior equity and currency analyst. Most recently, he took on an Audit role, supervising BSA/AML Compliance teams for one of the largest banks in the world. He has both a Bachelors and MBA in Finance. He is the "Macro Expert" of the CEF/ETF Income Laboratory.
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CEF/ETF Income Laboratory: Profitable CEF and ETF Income and Arbitrage Ideas
Whether you're a novice or experienced closed-end fund ("CEF") and exchange-traded fund ("ETF") investor, the "Income Lab" is the right place for you. Our goal is to help you benefit from income and arbitrage strategies in CEFs and ETFs, all without having to be an expert, because we do the heavy lifting for you. If that sounds like something you'd be interested in, we hope you'll consider joining us here at CEF/ETF Income Laboratory.
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Stanford Chemist, Nick Ackerman, Alpha Male, Juan de la Hoz and Dividend Seeker
Analyst's Disclosure: I am/we are long HIE, HYI.
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.