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Closed End Bond Funds

Brightorange
in Fund Discussions
Does anyone have any thoughts on these Closed End Bond Funds, or others? I know that Doubleline also has a Closed End Bond Fund, DBL, but it is at a +2.54 premium.

Bonnie Baha said that "A good alternative for investors interested in corporate credit is closed-end bond funds, some of which trade at "incredible discounts,"


From Kiplinger

Two closed-ends worth considering: Pimco Income Opportunity Fund (PKO, $22.61), which invests in all types of debt, from mortgages to corporate and government bonds, trades at a 6.5% discount to NAV and yields a whopping 9.4%. BlackRock Multi-Sector Income Trust (BIT, $15.75), which invests mostly in corporate bonds and asset-backed securities, sells at a 15.7% discount to NAV and yields 8.9%. Both funds employ leverage. (Share prices, yields and discounts are as of November 12.)
Read more at http://www.kiplinger.com/article/investing/T041-C009-S003-doubleline-s-gundlach-buy-closed-end-bond-funds-in.html#g4YlAZdx3GK82cTy.99

Comments

  • MikeM2
    Sam Lee said to never buy CEFs at a premium. PCI and PDI have been included in M*'s etf newsletter portfolios in the past.
  • AndyJ
    edited November 2015
    Cef's are complex and at times volatile investments that deserve a lot of study prior to diving in with more than a few test bucks (a tutorial, lots of reading at the M* CEF forum and the buy-sell thread under the M* Fidelity forum, etc.).

    Just for starters (and judging from the wording of the OP, probably an important point), looking only at the absolute level of premia/discounts can be misleading - at least as important is the level of the premium/discount relative to history. (The "z-stat" figured for 6m-3y periods is a decent measure of the relative level.)

    Good luck - AJ

    P.S. The Kiplinger article, mentioning a grand total of two cef's as "worth considering," doesn't deserve much if any deference. For example, Pimco has a whole battalion of cef's, a number of which are still trading at large historical discounts even after the recent runup in many cef's; it isn't at all clear why the author picked that ONE to highlight.
  • Vert
    There are plenty of closed-end bond funds trading at 10-15% discounts and paying out 9-12% distributions. They're usually either global bond funds, emerging market bonds or junk bonds. They'll usually use leverage, tend to be owned by individuals rather than institutions, and are often subject to year-end tax selling (I'd guess that this will be the case this year, but I'll emphasize that word 'guess').

    One thing that I'd be careful about is that the particular fund is only paying out the income that it's earning. Many of them return your capital to you in order to pay out a large distribution. I'm looking at DSL (another Doubleline cef), BGH (short-term junk) and the AllianceBernstein Global Income cef whatever its ticker symbol is (AWF?). They seem to fit the high distribution, high discount criteria while paying out only income earned. Good management teams, too, I think. Personally I'll wait until January if I do buy.
  • AndyJ
    Vert makes a good point about earned income. Another reason to keep up on earnings is that a blip on that score can be a signal to cef traders to sell-sell-sell, which will drive down the price (which can be a buying opportunity, or not, as with any financial asset). The other component of earnings is the undistributed net investment income (UNII), which can be a safety net for the monthly earnings or in some cases, fund a special YE distribution, which Pimco among others is famous for doing.

    The earnings reports by the big cef providers (Pimco, Nuveen, and others) are usually a hot topic on the M* cef forum I mentioned above. Sometimes the secondary data shops (cefconnect.com, M*) are out of the date on the current earnings and UNII figures.

    For the two Gundlach cef's (DBL, DSL), JG does an occasional webcast with a cef focus. The archives on the website has audio/slide links to and written summaries of past webcasts.
  • Brightorange
    Thank you Everyone!

    I will be retiring within the next 3 to 4 years and need to change allocation to "living off my money" rather than accumulating it. I am searching for things to begin to trade into for the future.

    I do listen to Gundlach's webcasts and always find them interesting. I am looking forward to his always informative January forecast.
  • BobCBobC
    Be VERY cautious about this. Yes, I agree there are some potential bargains. And Yes, you want to buy these at a discount, never at a premium. But most of these funds are very thinly traded which could make selling very problematic. The vibe I have heard recently is not about CE corporate bond funds, but rather CE high-yield muni funds. These are even more thinly traded. So buyer beware.
  • AndyJ
    edited November 2015
    Some cef's are thinly traded, some aren't, pretty much the same principle as goes for the universe of etf's. For sure, check the trading volume and the spreads between bid and ask for both cef's and etf's.

    Another caution: cef's employ leverage, so it's a good idea for accurate portfolio risk assessment to adjust fund + portfolio holdings %s for that leverage to accurately reflect allocations.
  • MOZART325
    Some cheap fixed income CEFs are: ARDC, KST, GDF, EHI
  • TSP_TransferTSP_Transfer
    edited December 2015
    @Brightorange said
    I do listen to Gundlach's webcasts and always find them interesting. I am looking forward to his always informative January forecast.
    image
    "Tick, tick, tick..."
    Please join us for a live webcast titled "Tick, tick, tick..." hosted by:
    Jeffrey Gundlach

    Mr. Gundlach will be discussing the economy, the markets and his outlook for what he believes may be the best investment strategies and sector allocations for the DoubleLine Total Return Bond Fund (DBLTX/DLTNX).

    Tuesday, December 8, 2015
    1:15 pm PT/4:15 pm ET /3:15 CT
    https://event.webcasts.com/starthere.jsp?ei=1051161
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