Fund Favorites For Floating Rates

Currency of European Union on marble surface

Image source: Pexels

Marty Fridson, is a leading dividend investing expert; here, the editor Forbes/Fridson Income Securities Investor looks at two recommended floating rate funds.

The primary objective of the Blackstone/GSO Senior Floating Rate Term Fund (BSL) is delivering high current income with preservation of capital. Under normal market conditions, this closed-end fund invests at least 80% of its managed assets in senior, secured floating rate loans.

The fund also invests in second-lien loans and high yield bonds. BSL is a limited term fund and without shareholder approval to extend the fund, BSL it will be dissolved on or around May 31, 2027. We initially recommended BSL in April 2017 as a Buy for medium- to high-risk tax-deferred portfolios.

As of Dec. 31, 2021, first-lien loans accounted for 83.6% of the portfolio. The top five industry sectors were Electronics/Electric (19.6%), Healthcare (16.0%), Business Equipment & Services (13.9%), Building & Development (4.7%), and Insurance (4.4%).

Portfolio holdings are all rated non-investment grade, with more than 80% of the fund’s distribution concentrated in ‘B’ rated loans and securities. BSL’s top five issuers as of Dec. 31, 2021 were Veritas (1.0%), NFP (1.0%), Park River Holdings (0.9%), AqGen Ascensus (0.9%), and Carestream Health (0.9%).

The fund’s performance record has been relatively stable with solid results. BSL’s market price total return was a very strong +28.39% for full-year 2021, but -10.15% for the year-to-date period ended March 31, 2022.

Distributions vary and have been taxed largely as ordinary income. This closed-end investment is suitable for medium- to high-risk tax-deferred portfolios. We would say to buy at $19.00 or lower for a 4.48% annualized yield.

The investment objective of the Nuveen Floating Rate Income Fund (JFR) is to achieve a high level of current income with capital preservation. The fund’s strategy under normal market conditions is to invest at least 80% of its managed assets in adjustable rate loans.

Other investments may include unsecured senior fixed rate loans, as well as subordinated loans. Industry risk was well diversified as of Dec. 31, 2021, with Hotels, Restaurants & Leisure (11.4%), Media (11.3%), Software (7.0%), Healthcare Providers & Services (7.0%), and Oil, Gas & Consumable Fuels (4.9%) accounting for the portfolio’s top five industries.

Approximately 85% of JFR’s investments were rated non-investment grade. Country risk was dominated by the U.S., representing 81.9% of the portfolio. The top five issuers were Restaurant Brands International (2.5%), Intelsat (1.4%), CSC Holdings (1.4%), Clear Channel Outdoor Holdings (1.4%), and Fieldwood Energy (1.2). Portfolio duration was short, at under one year.

Investment performance has been solid, with the fund reporting a +24.66% market price total return for 2021. Total return for the year-to-date period ended March 31, 2022 was relatively flat.

JFR has adopted a managed distribution plan, which is taxed on a variable basis, based on current income, capital gains, and/or return of capital. This investment is suitable for medium- to high-risk tax-deferred portfolios. We would say to buy at $13.50 or lower for a 5.15% annualized yield.

Disclaimer: © 2022 MoneyShow.com, LLC. All Rights Reserved. 

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.