JAAA - BGT: A Good Source Of Income Today But A Pricey One

2024-05-13 13:12:04 ET

Summary

• BlackRock Floating Rate Income Trust Fund is a closed-end fund that aims to generate a high level of income with less volatility than fixed-income funds.
• The fund has a lower yield than its peers, but also lower risk exposure due to lower levels of leverage.
• The fund's recent performance has been strong, outperforming both investment-grade and junk bonds.
• The fund should be a good holding for income-seekers as long as the Fed does not cut interest rates. That is a scenario with a higher probability than the market thinks.
• The fund is fully covering its distribution and trades at a considerable premium.

The BlackRock Floating Rate Income Trust Fund ( BGT ) is a closed-end fund, or CEF, that income-focused investors can employ as a method of achieving their goal of generating a high level of income from the assets in their portfolios. This fund can do this with somewhat less volatility than an ordinary fixed-income fund. For example, this chart shows the performance of the fund’s portfolio compared to both the Bloomberg U.S. Aggregate Bond Index ( AGG ), which tracks domestic investment-grade bonds, and the Bloomberg High Yield Very Liquid Index ( JNK ), which tracks domestic junk bonds, over the past three years:

As we can immediately notice, the fund’s underlying portfolio has generally proven to be much less sensitive to interest rate movements than ordinary fixed-income securities. Admittedly, this stability does not apply to the fund’s share price, but over the long term, the share price performance should exhibit a degree of correlation to the underlying portfolio....

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