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Is BCX Worth Keeping?

|Includes: BCX, GGN, NexPoint Strategic Opportunities Fund (NHF)

This discussion addresses holdings in my Perpetual Income Portfolio as outlined in my e-book.

Deciding what to do with BCX is a tough call.

I decided to trade out of the fund until it looks more attractive as a high income holding.

A lot has been happening lately in the closed-end fund world.  Rights offerings, distribution cuts, uncertainty about a credit crisis or how long this bull market will run, etc.

One of the things I watch closely is the current distribution rate for each of my holdings.  Because I'm in CEFs for the perpetual income, this is a key metric for me.  One of my aims is to be invested in funds that are earning at least 7% while remaining well diversified.  

BCX is a commodity fund that provides quality exposure to precious metals, energy, and agriculture - a good diversifier for a broad basket of funds.  I have held a split commodities position for a few years now:  a half-position in GGN and half in BCX.  GGN has always been rather unpredictable, so BCX provided a little stability and peace-of-mind.

BCX pushed higher and higher the past year or so, enabling me to take gains along the way.  That push higher also decreased the current yield, making it less and less of a high-yielder.  It dropped below 7% some months ago, and I waited to see what it would do.  Sometimes funds that drop below my target yield recover it quickly, so there's no need to make any hasty decisions.  Unfortunately, my position-size had been dwindling as well as the yield.  Not a good combination.

I debated whether or not to go back to a full-position in GGN, but just don't feel that it would be a prudent move.  I've held GGN a very long time and have learned not to put my trust in it too heavily.  Hence, the half-position.  

After debating with myself for weeks about what to do, I finally decided to trade out of BCX for now and redeploy that money into something with a much better yield.  Commodities funds are all pretty much in the same boat and aren't offering much today.  This has posed a conundrum for my goals of staying well-diversified and sticking to my carefully-planned allocations.

So, in the interest of being transparent with my decisions and changes to my holdings, I wanted to share my conclusions. I decided to pick up a half-position in a mixed fund, NexPoint Strategic Opportunities Fund (NHF), and hold it while I continue to watch the commodities funds over the coming year.  NHF holds about 60% equities, 20% preferreds, and about 20% bonds, all in a variety of sectors and geographic regions, and is paying out over 10% in distributions.

It is obviously not a proxy for commodities, but I didn't want to throw off my mix of equities and bonds.  I feel pretty good about NHF, so I might as well take advantage of the fund while I wait for commodities CEFs to look more attractive again.  It will be interesting to see where things go from here.

If you are unfamiliar with my portfolio or my investment strategy, please see my e-book Perpetual Income With Closed-End Funds (also available as an e-course).

Please do your own due diligence on any closed-end funds you read about here.

Disclosure: I am/we are long GGN,NHF.