EFT - FRA: Still A Good Way To Earn An Attractive 11% Yield Today (Rating Upgrade)
2024-03-08 15:09:35 ET
Summary
- The BlackRock Floating Rate Income Strategies Fund Inc offers a high yield of 11.46% due to its investment in speculative-grade floating-rate securities.
- The FRA closed-end fund's performance has been strong, outperforming both the floating-rate index and the Bloomberg U.S. Aggregate Bond Index over time.
- The fund has increased its exposure to BBB-rated securities in the last few months, which may please risk-averse investors.
- Inflation trends are not positive, which makes the rate cut narrative very difficult to believe. As long as rates remain high, FRA should perform well.
- The fund is trading at a discount and it is one of the only leveraged loan funds to make an ROC distribution in 2023.
The BlackRock Floating Rate Income Strategies Fund Inc ( FRA ) is a closed-end fund, or CEF, that income-focused investors can use in pursuit of their goals. The fund has a very attractive 11.46% yield at the current share price, which is not exactly surprising. After all, as I have pointed out in various previous articles, floating-rate leveraged loan closed-end funds tend to have higher yields than those debt funds that invest in traditional fixed-rate bonds due partly to the inverted yield curve. As we can clearly see here, short-term bonds and loans have substantially higher interest rates than long-dated securities:
This is partly driven by the market expecting that interest rates will be substantially lower in the future than they are today. This is not exactly surprising considering that the Federal government is currently spending more than $1 trillion annually on debt service and the U.S. national debt is rising by about $1 trillion every 100 days. At some point, the Federal Reserve will be forced to reduce interest rates simply to avoid a situation in which servicing the national debt becomes untenable....
FRA: Still A Good Way To Earn An Attractive 11% Yield Today (Rating Upgrade)