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Walking a Little Further on the Wild Side

We all have a different level of risk we are willing to take to garner some portfolio income and I have tried hard to push myself to buy some riskier assets. I still have plenty of dry powder–which I want to maintain at a healthy level, but I need to see some dividends and income flowing, or at least more–those $200-$500 payments hitting the account help motivate me.

Last week I wrote a bit about Oxford Lane (OXLC) and Eagle Point (ECC) issues I have bought—and folks chimed in with other suggestions.

Earlier this week I bought some of the term preferred shares issued by CLO owner Priority Income Fund (not traded). This collateralized loan obligation owner (organized as a closed end fund) is controlled by the hated (at least by many) business development company Prospect Capital (PSEC).

Priority Income Fund has 6 term preferred issues outstanding. The company became a ‘serial’ issuer of shares starting in 2018 and continued to sell new issues right through 2/2020. When the pandemic hit the company had registered to sell a another new issue, but it never happened.

Of the 6 issues outstanding only one is currently redeemable and 3 more issues will become redeemable in 2021—all but 1 issue trades under $25/share so they carry little to no call risk.

Below you can see a financial summary for the fund as of 6/30 for the last number of years. Really huge investment income, but pretty high expenses. High payouts to common holders with a slowly decaying net asset value (NAV)–on a per share basis. Generally the company pays out most of their investment income irrespective of unrealized losses.

Just remember with these closed end funds we care about the total asset value in dollars–not per common share. Funds like Priority Income Fund are always selling more common shares and below you can see that while the per share NAV is eroding the total assets continue to rise–at least until this year. The total asset value is what is used to provide our coverage ratio–closed end funds must have at least 200% coverage on the senior securities (i.e. preferred shares).

Below are the common shares the fund has sold over the last many years. These funds help keep the leverage ratio up–even if the common per share amount is falling.

As long as the total assets remain flattish I will feel comfortable holding some of the preferred shares assuming this economy doesn’t crash lower again. If the economy softens dramatically I will have to re-evaluate this one.

13 thoughts on “Walking a Little Further on the Wild Side”

  1. always looking for ideas and others input, I know someone recommended cef “BUI” common at one time, I found this Black Rock literature about option strategies employed in these closed end funds. I’m currently holding preffereds of GDV but those type of pickings have got pretty slim. Any ones thoughts would be greatly appreciated. This is as wild as I get. https://www.blackrock.com/us/individual/literature/investor-education/equity-covered-call-cefs.pdf

    1. i have been in a few of these. returns long term have been good but
      the idea that they give you downside protection is not really accurate.
      i have owned bdj for 6 years and its got a nice long term return. But this year has been terrible. hasn’t recovered . down about 9 percent ytd. I’m still up about 8 percent per year since i bought it though.
      if the market were to level off they would probably do well.
      BUI has done really well since inception(about 5 years or so i think)

    2. Mike,

      I’ve owned BUI, along with a few other ute CEFs for less than a year. I like what they hold. I like that they have virtually no leverage. I like that M* rates them at 5*. They are up a bit for me and pay monthly. They make up 2% of my portfolio, the limit for me.


      1. bob/camroc Thanks for your experience, My analysis shows entry point is the best indicator of success, but that’s the case with everything. Was actually looking for where I might go on next sell off , I to was skeptical of the protection offered. Again thanks both of you.

  2. I see the preferred shares for Priority Income Fund on the NYSE, but where do the common shares trade? How do I know what the latest coverage ratio for the preferreds is?

    1. TEF-
      from up above:
      “Earlier this week I bought some of the term preferred shares issued by CLO owner Priority Income Fund (not traded). “

  3. Looks like you moved the market, Tim. PRIF-F had about three times recent volume today. I put in a bid too but it didn’t fill. May try again, it’s yielding close to 7%. Been holding the C for a year or so, it’s back over par again, still yielding about 6.5. Thanks

  4. I too bought some of the PRIF-F and PRIF-E.
    Need the income. These are selling under $25 and offering yields of more than 6% that is qualified! A little on the wild side, but worth it in my book.
    Thanks, Tim.

    1. Gary–yes I agree, but all in all they all will work–just depends on the given day–some ‘pop’ and some ‘drop’.

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