Well it isn’t really too much of a wild side walk but I have started to buy some preferred issues that I haven’t owned for a few years–still in my comfort zone, but dicier than owning utility and CEF preferreds and baby bonds.
Yesterday I started to add positions in the Eagle Point Credit (ECC) monthly paying 7.75% term preferred (ECCB) and Oxford Lane Capital (OXLC) 6.75% term preferred (OXLCM).
As most of you know these closed end funds invest entirely in CLO’s–collateralized debt obligations. These are not investments I really want to get into heavily, but it is all above risk and reward—and we all realize the reward has gotten pretty meager in investment grade issues—so here I am into higher risk issues.
It is my plan to simply hold these–in very limited quantity (a few hundred shares each) simply to help goose my dividends a bit. Given that they are term preferreds pricing should remain fairly flat until the next ‘tantrum’ or event and only God knows when this will happen.
The key with these issues is to watch the leverage–being organized as closed end funds they must maintain a 200% coverage ratio–this gives the senior security holders (preferreds and debt) some level of protection.