CRF - Chasing Yield - 14 Funds Yielding 15% Or More To Consider

2023-07-03 12:14:33 ET

Summary

• In preparing for retirement, I seek high-yielding income holdings to grow future passive income stream, which includes 40 different positions.
• Ten funds mentioned herein are in my income compounder portfolio.
• In this article, I suggest several high-yielding funds for investors looking to build an income-generating portfolio but warns that further due diligence is required before investing.

While I prepare to enter the next chapter of my adult life with my pending retirement in August, I continue to seek high-yielding income holdings to further grow my future passive income stream. I have previously written about my Income Compounder portfolio that represents about 25% of my net worth with the most recent update published in June. In that portfolio, I have approximately 40 different holdings each of which averages about 2.5% of the total value of the portfolio. Some positions are larger than others depending on the risk/reward profile. Several of those holdings yield more than 15% per year based on TTM (trailing twelve month) distributions.

In my Income Funds watch list on Seeking Alpha, I sorted the funds that I am currently following based on TTM Yields with 14 of them showing yields in excess of 15% over the past 12-month period. Several of those funds offer a variable distribution, so the forward yield may look much different if the most recent distribution was considerably different than the previous month (as in the case of USOI, for example).

I currently own 10 of these funds in my No Guts No Glory income compounder portfolio and reinvest the distributions in additional shares of most of them because I do not yet need the cash. I probably will not need cash from the portfolio for another several years as my upcoming pension and Social Security payments will more than cover my living expenses for the near future. For those investors looking to build an income generating portfolio like mine, I wanted to offer a few suggestions for high yielders that may be worthy of further research.

If you are still building your portfolio for total return, these funds may not meet your needs because several of them offer high income but very little in the way of capital appreciation. That is a trade-off that one should consider before "chasing yield" as commenters will often warn when I write about these investment options. In my case, a lower price offers a higher yield, and more shares can be purchased at a lower cost to generate even more future income, as long as the distribution does not get slashed. I follow the funds closely and watch for signs that a distribution cut may be coming.

Because each fund represents less than 3% of my overall holdings, I am willing to put up with an unrealized loss but not a significant cut to the distribution. So far this year, I have not witnessed any major cuts to the distribution of the funds that I own. My total unrealized loss as of the end of June sits at about -3.5% of my overall portfolio value and the average yield of my portfolio is about 14%. That results in nearly $30,000 in passive annual income from a $200,000 portfolio as illustrated in this snapshot from my Schwab IRA.

USOI

Why would you want to invest in a fund that has lost more than 27% in the past year? Well, I probably would not have recommended it back in July of 2022 because oil prices were dropping, and Credit Suisse subsequently failed a few months later. By November 2022 the bank was bleeding cash and the Swiss bank UBS offered a takeover bid, which was just completed in June. Meanwhile, oil prices appeared to have bottomed at around $70 and I decided that it was time to establish a position in USOI to take advantage of the strong distribution yield that is likely to continue with UBS now managing the fund.

Although the dividend history shows a declining amount the price of the fund has also declined and went through a 1 for 20 reverse stock split on September 27, 2022. There is no guarantee that the distribution will continue or even that UBS will continue to manage the fund in the same manner as CS did, however, that is a risk that I am willing to take.

The price of the USOI fund is highly correlated with the price of crude oil futures (CL1:COM) as shown in this chart. It is my opinion that the price of crude oil has essentially bottomed at around $70 so I initiated a position in USOI for about that price. I will be watching both the price of oil and the future dividend declarations over the coming months.

SVOL

If you are interested in passive income from market volatility, Simplify Volatility Premium ETF ( SVOL ) might be worth considering. I recently wrote a detailed update on SVOL that describes how the fund generates income based on shorting VIX futures. You can read more about it here . Meanwhile, the steady $0.32 monthly distribution offers a yield of nearly 17% at the current price.

OPP and RIV

The two CEFs (closed-end funds) from RiverNorth that show up on the list of 15% yielders include RiverNorth/DoubleLine Strategic Opportunity Fund ( OPP ), which I own, and RiverNorth Opportunities Fund ( RIV ). Both funds offer a managed distribution, and both currently trade at a wider than average discount.

Because I currently only own OPP that is the one RiverNorth fund that I will discuss in more detail. If you wish to learn more about RIV, see the recent article from Nick Ackerman that describes it in detail.

The investment strategy for OPP is described from the fact sheet this way:

RiverNorth allocates the Fund's assets among three principal strategies: Tactical Closed-End Fund Income Strategy, Alternative Credit Strategy, and Opportunistic Income Strategy. RiverNorth manages the Tactical CEF Income Strategy and the Alternative Credit Strategy, DoubleLine manages the Opportunistic Income Strategy. RiverNorth determines which portion of the Fund's assets is allocated to each strategy based on market conditions.

According to CEFConnect, the current discount of -11.8% is wider than the average discount over the past year even though steady distributions of $.1021 have been paid since January and are expected to be paid out each month for the remainder of the year. The NAV appears to be stabilizing now in July and the discount is narrowing but still offers a good buying opportunity for those willing to accept the risks.

Cornerstone Funds - CLM/CRF

The two closed-end funds offered by Cornerstone include the Cornerstone Total Return fund ( CRF ), which I last covered in December 2022, where I explained best methods for investing in the fund, and Cornerstone Strategic Value fund ( CLM ). There is a lot of discussion from various authors and commenters on SA regarding both funds and some investors claim to have very substantial positions in one or both funds. I currently have a rather substantial (for me) holding in CLM.

Both CLM and CRF are equity-based funds that hold positions in top performing companies that are market leaders. As of 3/31/23 the top 10 holdings in CRF account for about 35% of the total based on 155 holdings in the fund portfolio.

The C funds both tend to trade at a premium to NAV and offer a managed distribution as well. One advantage to the funds is the reinvestment policy which allows for reinvestment at NAV when the funds trade at a premium. Given that the premium for each fund currently stands at about 18%, that gives investors who do reinvest distributions an immediate 18% savings on cost while the fund offers a yield that is currently about 17.5% on an annual basis based on the current monthly distribution of $.1173 in the case of CRF.

The price premium of 18% is slightly below the 1-year average and the NAV is trending up in the past month. I feel that both funds are still a good Buy for the income and are not likely to see lower premiums or a discount any time soon given the current bullish market conditions. The funds also typically do rights offerings most years to raise capital when the premium is high enough to justify it. I do not expect them to do a RO this year unless the premium increases to a level closer to 30%, which is about the premium level when previous ROs were announced.

CLO funds - OXLC and ECC

Other high yielding funds that I own, and which invest in CLOs (collateralized loan obligations) include both Oxford Lane Capital ( OXLC ) and Eagle Point Credit Company ( ECC ). I last covered ECC in November 2022 and since that time they have paid out a special dividend of $0.50 in January 2023, and then subsequently raised the distribution from $0.14 per month to $0.16 by declaring a $.02 supplemental distribution for the months of July, August, and September. Despite all the dividend increases and assurances of continued high yield distributions for at least the next 3 months, the price of the stock has remained at nearly the same level that it traded at during the October low as shown on this price chart.

Likewise, OXLC has not gotten much love from a price perspective over the past 9 months or so, despite also increasing the distribution. In May, the company announced a monthly distribution of $.08 per share, an increase of 6.7% from the previous distribution of $0.075 per share. The monthly dividend has been rising steadily over the past 3 years after being cut in half back in 2020 due to the Covid pandemic. Some investors are apparently still shy about investing in the fund given the recent history, however, the distribution appears to be well covered and may even see another increase later this year.

Other Funds Worthy of Consideration

In addition to the ones that I covered above, I also hold long positions in ACP, RYLD, EDI, and ZTR. Back in February of this year, I wrote an article about Virtus Stone Harbor Emerging Markets Total Income Fund ( EDI ) that you can read to learn more about why I believe that fund is a Strong Buy given opportunities in emerging markets fixed income. Since the time that article was published, a merger was announced with the sibling fund, Virtus Stone Harbor Emerging Markets Income Fund ( EDF ). The remaining fund will keep the EDF ticker.

While EDI briefly traded at a slight discount earlier this year it now trades close to par and the price is rising along with the NAV as the merger comes closer to completion. Meanwhile, the monthly distribution of $0.07 continues to be paid every month since May 2021, offering risk tolerant investors a hefty yield of about 16% at the current market price.

Parting Thoughts

As I mentioned in the beginning, not all these funds (if any) are right for every type of investor. If you are seeking a high yield distribution that offers monthly income for retirement, or whatever purpose you have in mind, some of these may be worthy of further due diligence. Another fund that I recently discovered and added to my watch list is YieldMax ARKK Option Income Strategy ETF ( OARK ). I have done very little research on this fund which was just launched in November 2022. It offers a very high yield based on what I would consider a very risky strategy, but it is tempting to look into it further based on the brief history of the fund so far.

This is the fund description from the SA summary page:

The investment seeks current income; the secondary investment objective is to seek exposure to the share price of the ARK Innovation ETF ("ARKK"), subject to a limit on potential investment gains. The fund will seek to employ its investment strategy as it relates to ARKK regardless of whether there are periods adverse market, economic, or other conditions and will not seek to take temporary defensive positions during such periods. In seeking to achieve its investment objective, the fund will implement a "synthetic covered call" strategy using the standardized exchange-traded and FLEX options. It is non-diversified.

The share price of the fund seems to be recovering from a low set back in early May. The ARKK fund is up nearly 45% YTD so it may make more sense to simply buy shares of ARKK, but the temptation is to buy OARK for the income it generates from selling options. I will leave it to you readers to decide whether this is an investment worthy of further consideration. I do not own any yet, but I will be watching and reading more to learn what I can about it. Please chime in with a comment if you have anything constructive to add to the discussion.

Thanks for reading and best of luck to you in your investing for income goals. Be well and have a happy, healthy, and safe 4th of July holiday in the US, and a pleasant summer if you are somewhere else in the world reading this.

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