Discount to NAV
Nexpoint Credit Strategies Fund (NYSE:NHF) is a closed-end fund trading at a discount to NAV of over 12%, which is greater than its 5-year average discount. Its objective is to:
deliver attractive risk-adjusted returns to its investors by employing a multi-strategy investment approach to exploit relative value and arbitrage opportunities within the credit markets.
Investing Talent
The fund suffered horribly during the financial crisis but has performed well since then. While offering the caveat that the price declined over 57% in 2008, my view is that this fund's asset allocation is good and that the fund manager has investment skill. This is the first closed-end fund that I have ever owned where that is the case.
James Dondero, the fund's portfolio manager, is a credit expert and founder of Highland Capital Management.
It is unusual to be able to align one's interest with such a talented investor in such a small investment vehicle as NHF.
REIT Spin-Off
NHF is spinning-off NexPoint Residential Trust (NXRT), a REIT which will own and operate multifamily real estate. The closed-end fund's NAV will decline from about $13.63 per share to about $10 per share. Today's discount would move the market price to about $9. As for the REIT, the equity is worth at least $4 per share by the end of this month at which point it should no longer have a closed end fund discount. Over time, it is likely to increase from $4 to around $7 as it trades closer to in line with comparable REITs.
Conclusion
NHF offers an opportunity to make over 5% within a month and over 30% within a year.
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