MCN - NFJ: Poor Performance But The Portfolio Is Not That Bad For Today's Market

2024-03-26 09:27:01 ET

Summary

• The Virtus Dividend, Interest & Premium Strategy Fund uses a combination of convertible securities and dividend-paying common stock to generate income.
• The fund has a higher current yield than its peers, but its performance over the past three years has been disappointing.
• The fund has underperformed its peers by a considerable margin, but its distributions have resulted in a total return of 15.74% over the trailing three-year period.
• The fund is easily covering its distributions at the current level and it recently raised the payout. There is no reason to expect that it cannot sustain the new higher level.
• The fund is currently trading at a very attractive valuation, but I see no reason to expect that it will outperform its peers.

The Virtus Dividend, Interest & Premium Strategy Fund ( NFJ ) is a closed-end fund that income-focused investors can employ as a method of achieving their goals. This fund uses a somewhat unusual strategy to achieve this goal, but it will probably not be surprising to those regular readers who are familiar with some of Virtus’s other closed-end funds. After all, this one uses a combination of convertible securities and dividend-paying common stock as its primary source of income. It then throws in a covered call strategy for additional income, much like some of Eaton Vance’s equity income funds. This all allows the fund to boast an 8.92% yield, which is certainly reasonable for a closed-end fund that does not require investors to sacrifice all of the potential upside that comes with an equity investment. Morningstar classifies the Virtus Dividend, Interest & Premium Strategy Fund as an “Equity–Covered Call Fund,” so we can use that to establish a peer group for this fund. Here is how its yield compares against said peers:

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