CCIA - FRA: Net Asset Value Destruction Continues As The Fund Maintains Distributions

2025-06-02 05:25:35 ET

Summary

• FRA offers a high yield (11.69%) but is overdistributing, causing net asset value destruction and threatening sustainability.
• The fund is trading at a premium to NAV, while most peers trade at discounts, making it relatively expensive given its risks.
• FRA's income will likely decline further as the Fed cuts rates, increasing the likelihood of a distribution cut and share price drop.
• It is difficult to see a scenario in which the Fed does not cut later this year as inflation is declining.
• Given these risks and poor value, I find it hard to recommend FRA at current prices; better opportunities exist among peers trading at discounts.

The BlackRock Floating Rate Income Strategies Fund ( FRA ) is a closed-end fund that investors may wish to purchase as a means of achieving a very high level of income from the assets that they already possess. As is the case with many closed-end funds, the BlackRock Floating Rate Income Strategies Fund generally does better than most comparable index funds in terms of the provision of income. As of the time of writing, the fund yields 11.69%, which is substantially higher than the yield of any of the major fixed-income indices tracking the debt sector:

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