We have had some discussion in various comments on the website about the 2 high income target date trusts from Invesco. Additionally someone had asked me to opine on which is ‘better’–so I did some ‘homework’ over the long holiday weekend.
The Invesco High Income 2023 Target Term Trust (NYSE:IHIT) was launched in November 2016 at an initial offering price of $10/share. The initial NAV (net asset value) was $9.835. The intention of the trust is to return the $9.835 on or about on 12/1/2023.
The portfolio held by the 2023 portfolio was composed of about 86% commercial mortgage backed securities, 10% REIT corporate debt and preferred stock and 3-4% other investments. This portfolio was about 81% investment grade, 13% junk rated and 6% not rated. This data is of 8/31/2018
The initial dividend on these Trusts are not announced for 45 days after the IPO and in the case of the 2023 trust the initial dividend (and all subsequent dividends) was declared at 5 cents/share monthly–6% annually. We are not aware of any defaults within the portfolio since inception years ago.
The 2023 Trust has UNII (undistributed net investment income) of around 4 cents/share (although this amount moves around month to month) as of 8/2018.
Below you can see how the IHIT issue has traded since issuance.
The Invesco High Income 2024 Target Term Trust (NYSE:IHTA) was launched in November, 2017 at an initial offering price of $10/share. The initial NAV was $9.835 and it is intended that this amount would be returned to the investor on or about on 12/1/2024.
The 2024 portfolio was composed of 70% investment grade securities (and cash), 12% junk rated and 18% not rated with 84% commercial mortgage backed securities, 10% REIT corporate debt and preferred stock with a little over 5% in ‘other’.
The initial announced dividend on this trust was 4.67 cents/per share monthly-5.6% annually where it has remained since the IPO. The price of the trust fell substantially after the announcement of the initial and subsequent dividends.
The 2024 Trust has UNII of over 7 cents (as of 8/2018)
Below you can see how this Trust has traded since a year ago.
So we can see the facts of each of the trusts.
The 2023 Trust is higher in quality by a bit than the 2024 Trust, but the declared dividends on the 2024 have been measurably smaller than the 2023 trust and this is the likely culprit on why the 2024 trust has traded consistently below NAV. NOTE that the NAV on the 2024 Trust is 9.79 while the NAV on the 2023 Trust is 9.97. The 2024 Trust trades at a 50 cent discount to NAV while the 2023 Trust trades at a premium of 6-7 cents.
THE CURRENT YIELD ON EACH TRUST IS 6%.
So if one were to assume no defaults in either portfolio prior to ‘maturity’ the Yield to Maturity on the lower priced 2024 trust would be around 7%, while the Yield to Maturity on the 2023 trust would be around 6%.
Based on what we know today we would purchase the 2024 issue at this moment. NOTE that we currently own the 2023 trust (purchased before studying the details closely). We may switch to the 2024 when opportunity arises.
Other considerations.
Both portfolios use 25% leverage and the cost of leverage has been rising substantially (as pointed out by Bea) and this may affect future dividends.
The 2023 is a much larger portfolio–around $240 million versus $80 million for the 2024 Trust.
As the portfolios move closer to ‘maturity’ it is likely that the dividends may be reduced as loans ‘run off’.
The 2024 portfolio is somewhat lower in quality and a year furtehr out to ‘maturity’ thus the higher Yield to Maturity may be warranted.
Hi – a question on the DRIP aspect for both funds. In reading the IHTA fund report it states the shareholders are automatically set up for dividend reinvestment. Is there an option to have dividends paid-out (no DRIP)? I’m only interested in the funds as part of an income portfolio. Thank you.
Tim
Like others, really appreciated your piece on IHIT and IHTA. While I understand the logic of feeling that IHTA might be a better investment, I don’t fully agree.
l.I think I rather stick with IHIT which has a high quality of assets because the probability of default in probably lower on IHIT and the yields based on your write up are the same.
2.In terms of protecting capital, seems as if IHIT is a better choice.We might be giving up a marginal amount of gain but protecting capital seems more important. Greatly appreciate your inputs .best sc
Hi sc4–can’t argue with your logic. As always what is good for one is not for others. Thanks for your input.
Tim, read your rationale on IHTA and IHIT and it’s very thought provoking. I own a fair amount of IHIT now, and have been satisfied for the most part.
I prefer to stick with IHIT because of the higher quality and earlier maturity – but am seriously considering an investment in IHTA.
The price at a discount is nice as there is no loss if held to the 2024 “maturity “, though I would hate to see the dividend get reduced as that date approaches. Still, it is a viable alternative to having cash in CDs or Money market funds.
Like you, I may put in a stink bid and see if someone bites, lol
sorry the link didn’t come out right. Here is the corrected link to the rights offering:
https://reorgdocumentlibrary.broadridge.com/Client/Client?data=1118/E11127/36242L105/c
Much appreciated Tim. Roughly, the way it works, is that three rights will allow the purchase of one share of common and one share of the B series at a fixed price for each. The rights exerciser must purchase both in combination – they cannot purchase one or the other. Anyhow, here is a link to the details of this offering for those readers that are interested:
https://myservice.broadridge.com/UniversalPortal/ReorgMob/reorgstrt/1118/E11127/36242L105/c/inde x.html . Page 2 is of particular relevance.
The current price of the common is $17.69/share (I made a bad mistake because I quoted GUT rather than GLU in my previous post).
The rights themselves (symbol GLU^ or cusip:36242L121; currently $.35/share) are currently being traded in the secondary market for those non-owners (or GLU owners who want to get even more GDL-B beyond their initial rights offering) that want to pay a premium to get the GLU-B. I like the fact that GLU-b will not be traded on the open market. You can just sit on them and earn interest. The downside is you have to add more common to your portfolio to get these illiquid preferred gems – that is why I am seeking more input from others before exercising my rights. thanks again.
Best Regards, Wedgehead.
Hi wedgehead–this must be the issue I mentioned in writing on the 5th of November
https://innovativeincomeinvestor.com/cef-gabelli-global-utility-income-trust-to-offer-puttable-preferred/
I will need to read the ‘rights’ offering to make sure I understand it. I know the new preferred contains a ‘teaser’ 7% rate to start with but ‘resets’ after year 1 at 200 basis points over the 10 year treasury.
I will check it out further.
Tim, first time poster here. Have really appreciated your work and sharing of insights along with those that post via replies willing to share their input as well. Actually bookmarked your previous website, The Yield Hunter, several years ago, and was glad to find out that you have a dedicated site again.
I had come across these 2 funds in the past, so appreciate an update as I may be in a position to reconsider them shortly. I am a little confused about the leverage of each. While I have read on the Invesco website under Risks and Other Considerations for IHTA that they anticipate using leverage, and the fund fact sheet shows leverage of 25%; when looking at Morningstar, Schwab and Cef Connect, none of them are showing any current leverage. I wonder therefore if the fact sheet is reflecting the maximum leverage cap amount should they decide to do so. Just a question, which I seem to have a lot of these days as I find myself continually going to school and appreciate so much those that are willing to share and teach. Thank you again and respectfully submitted.
Hi Monk–glad to have you here.
I will check the data again, but I believe both are carrying 25% leverage.
Hi again Monk—if you go to the report linked below you can scroll to the end of the portfolio holdings and you will find the total assets–which is then reduced by a 29 million dollar ‘reverse repo agreement’ line to get at net assets. This would actually be a bit higher than the 25%
http://hosted.rightprospectus.com/Invesco/Fund.aspx?cu=46136K105&dt=AR&ss=ce
As an owner of GUT, I received rights to purchase more shares of the common along with shares of GUT-B (must be purchased in combination) by December 15th 2018. However there is large discrepancy between the current market price of GUT and the subcription price (about $10 per share IIRC). However because the GUT-B doesn’t trade currently there may be some value in these rights. I was wondering what other readers felt about this most recent rights offering (recall the more attractive earlier rights offering last spring) ?
Hi wedgehead–I see the issue you have.
You must own the Gabelli Global Utility and Income Trust (GLU) NOT GUT.
GLU is trading at $17.69 right now so the price of 67.50 makes sense for 1 share of common and 1 share of the $50 preferred.
Tim, Let me first say that I really appreciate your time and effort to keep up this awesome site. It has helped me to keep abreast of the baby bonds and preferred issues along with your lists and comments. Traded out my IHIT for IHTA last week for a nice little profit.
Puck49–you are most welcome.
Looks like a good move on IHTA–actually am watching and will enter a limit order at slightly lower prices to see if someone whats to give me a ‘deal’.
Tim, thanks for the detailed analysis on these two. I have been in and out of IHIT over the past year because I perceived it to be the better choice. However, with your deeper research presented above I may rethink that and move to IHTA. Thanks again.
Hi Gary–I think there may be a flip or two (and long term hold) in my future with IHTA.
Tim,
I really appreciate your confirming and experienced eye. I have ‘laddered’ a portion of my funds in a passive way and chosen these two funds as part. There are good articles by ‘geeks’ that show the value of holding to term on a large pool like these CEFs esp when mixed with lower grade instruments. THe defaults tend to hit a ‘vanishing point’ of very small consequence as the maturity date approaches. I am incapable of gathering a large enough pool that can achieve this and one or two defaults would severely impact my little pool. I learned this the hard way with the help of a private bond broker. Still I am letting it roll to maturity. It will be interesting to see just how these CEF pros massage toward the $9.85 term target.
What do you think about the term CEF: GDO as a reinvestment target for income that accumulates right new; fresh drip cash?
PS: Thanks for the generous sharing in your site!!
Hi Joel A–thanks for your input.
I will look at GDO when I have a moment – hopefully later today.