Everyone has their goals for their investing—and every single one has their beliefs on how to attain their goals. My goals are simple–I would like to attain a 7% annual return by buying a blend of investment grade preferred stocks and bonds with some sprinkling in of some mid grade quality issues (I.e. BB and Ba1 – just below investment grade).
Some would like to attain a 6% or so annual return and they want to do it with ultra safety–impossible to attain the last few years–but now is a reasonable time to begin to lock in those yields and do it with high quality issues.
One of our newer website investors asked for some ideas on quality issues–so I though I would write on the topic on occasion so here is my thoughts on a quality issue which also provides a superb current yield.
Today I am highlighting the RiverNorth Opportunities Fund Series A 6.00% Perpetual Preferred Stock (RIV-A). Note – of course this is not a recommendation, but I do own near a full position. Everyone needs to do their own due diligence.
RiverNorth Opportunities Fund (RIV) is a closed end fund which essentially is a ‘fund of funds’ holding near 1/2 the fund in other closed end funds , but also holding a large allocation to SPAC’s.
The fund has been around since 2015 and has attained a 8.7% annual return (through 7/31/2022)–not terrible, but significantly below the S&P500 return. The fund has assets of around $380 million, so not a large fund relative to other closed end funds.
As a closed end fund they need to maintain a minimum of a 200% asset coverage ratio on senior securities, in this case preferred stock. As of 7/31/2022 RIV had a coverage ratio around 281%. It is obviously less at this point.
The preferred stock (RIV-A) was issued 4/12/2022 and the company sold about 3.9 million shares (3.4 million plus the overallotment of 510,000 shares).
RIV-A is rated A1 by Moody’s – strongly investment grade.
A comparison of like rated issues shows that the RIV-A provides a current yield almost 3/4% above the Gabelli issues which are rated A1, A2 or Aa3–very similar. Why are Gabelli issues yielding less? In my opinion it is because RIV holds SPAC investments—additionally as many here know ‘names matter’ and Gabelli is a old manager of closed end funds and the funds are larger in terms of net assets and are more traditional common stocks.
So the bottom line for me is that the RIV-A issues has a very attractive current yield with fund performance that is adequate (not the best – just adequate). Would I prefer a more traditional issuer? Yes I would, but I would forgo the incremental yield and at an A1 rating I feel comfortable with this issue.
A reminder–if interest rates continue significantly higher the share price may suffer (i.e. it is perpetual)–but the safety remains.
Disclosure–I own a near full position in RIV-A and am not recommending this issue to anyone–do you due diligence–each of us is different. I may buy more of this issue depending on opportunities presented.