We have added a modest position of the Invesco 2023 High Income Target Term Trust (NYSE:IHIT) to the Medium Duration Income Portfolio. We paid $9.72/share.
This term trust is a closed end fund and holds 80% or more of investment grade commercial mortgage backed securities (as well as a tiny portion of mREIT preferreds). The trust does use leverage of 25% which is how they are currently able to pay just over 6% in dividends.
A term trust expires (liquidates) on the date specified–in this case on about 12/1/2023. Most securities they hold mature in 2023 with a few in 2024 and some as early as 2019. The key to a term trust is that if holdings are liquidated too early there is a potential for a reduced dividend. On the other hand the company could choose to pay the cash out as a “return of capital”.
The trust IPO’ed on 11/28/2016 at a price of $10/share and has paid 5 cents per share each month since that time. Current market price of the shares is $9.72 with a net asset value (NAV) of $9.97.
The goal is to repay shareholders $9.835 as the term ends which is the original NAV.
So with a maturity date of 2023 there is certainly a modest level of interest rate risk in this issue which reduces as 2023 approaches. And of course there are chances of bankruptcies etc., but with a high proportion of investment grade issues this should be a lower risk. Additionally since the trust uses leverage any rise in interest rates has the potential to reduce earnings because of the higher cost of leverage.
We personally hold a mid sized position of this issue in our personal holdings which we bought a few months ago. We paid $9.74/share for our initial purchase and have been quite happy with the fairly tight trading range of the share price.
As always this is not a recommendation, but just what we think and have done.