RSF - The 'High-High-Low' Closed-End Fund Report July 2022
- Only funds with yields over 6.5%, coverage higher than 85% and trading at under a +5% premium are considered.
- Top lists of discount, yield, DxY and DxYxZ are given.
- The top DxY funds are HFRO, TEI and BGH.
Author's note: This article was released to CEF/ETF Income Laboratory members on August 2, 2022. Please check the latest data before investing.
"High-High-Low" Closed-End Fund Report
Quantitative screens help to rapidly narrow down attractive candidates from the database of 500+ closed-end funds (CEFs) for further due diligence and investigation. The "High-High-Low" report was inspired by a member of CEF/ETF Income Laboratory, who wrote:
Stanford, you should do a follow-up article on CEF that distribute 8%+, have 90% or more coverage and trade under NAV. What does that look like in today's world? How many funds are doing that?
What are the Z scores? I think many investors would be interested who are pushing for higher yield to identify best-in-class of aggressive funds that are coming close to covering dividends. Allows people to reevaluate risk/reward.
The "High-High-Low" report, therefore, screens for the following three attributes that we would like to screen for:
- High distributions (>6.5%) (i.e., 6.5% or higher yields)
- High coverage (>85%) (i.e., 85% or better coverage)
- Low premium/discount value (<+5%) (i.e., trading at a +5% premium or less)
Note that the above thresholds are subject to change, based on the number of eligible CEFs there are that satisfy all three of the criteria. I try to aim for a minimum of at least 20 eligible funds so that the "top 10" list actually means something (top 50% of the screen).
As for the Quality CEF report, I should mention some caveats about using coverage as a screen. Firstly, the coverage ratios are calculated using earnings data from CEFConnect. No efforts have been made to independently verify the coverage ratios from the individual fund annual/semi-annual reports themselves. Secondly, having a coverage ratio >90% does not guarantee that the fund's distribution is secure. Many funds reduce their distributions periodically in line with market conditions in order to maintain good coverage. Thirdly, a coverage cut-off ratio of 90% is, ultimately, an arbitrary number. A fund with 89.9% coverage will be excluded from the rankings, whereas funds with 90.1% coverage will be considered, even though only a sliver of difference separates the two.
The coverage ratio is calculated by dividing the earnings/share number provided by CEFConnect on the "distributions" tab by the distribution/share. CEFData also provides earnings coverage numbers as well.
I should also note that having both high yields and less than 100% coverage (though greater than 80%) makes this a more aggressive screen compared to the Quality report (which only selects for >100% coverage). Furthermore, note that because the universe of eligible funds is pretty small, some of the CEFs will appear in multiple top lists, just in a different order...
I hope that these rankings of "high-high-low" CEFs will provide fertile grounds for further exploration.
Key to table headings:
P/D = premium/discount
Z = 1-year z-score
Cov = coverage
1Y NAV = 1-year NAV total return
Lev = leverage
BE = baseline expense
Data were taken from the close of July 29, 2022.
1. Top 10 widest "high-high-low" discounts
The following data show the 10 CEFs with the widest discounts, yield >6.5% and coverage >85%. Z-scores, leverage and baseline expense are shown for comparison.
Fund |
Ticker |
Category |
P/D |
Yield |
Z |
Cov |
1Y NAV |
Lev |
BE |
Highland Floating Rate Opportunities Fd |
( HFRO ) |
Senior Loans |
-25.81% |
8.11% |
-1.5 |
116% |
18.1% |
11% |
1.61% |
Principal Real Estate Income Fund |
( PGZ ) |
Real Estate |
-13.06% |
9.58% |
-0.4 |
100% |
-9.2% |
33% |
2.15% |
Ivy High Income Opportunities Fund |
( IVH ) |
High Yield |
-11.35% |
7.99% |
-1.0 |
110% |
-17.6% |
30% |
1.51% |
Nuveen Real Asset Inc and Grwt |
( JRI ) |
Global Allocation |
-11.06% |
8.35% |
-0.6 |
86% |
-8.3% |
32% |
1.47% |
Barings Global Short Duration High Yield |
( BGH ) |
High Yield |
-10.86% |
9.45% |
-1.0 |
122% |
-13.0% |
30% |
1.62% |
Blackstone Long-Short Credit Income |
( BGX ) |
Senior Loans |
-10.49% |
7.88% |
-0.9 |
112% |
-10.2% |
41% |
2.43% |
BNY Mellon High Yield Strategies Fund |
( DHF ) |
High Yield |
-10.43% |
9.27% |
-0.9 |
103% |
-19.8% |
33% |
1.28% |
Templeton Emerg Mkts Income |
( TEI ) |
Emerging Market Income |
-9.89% |
12.21% |
-1.0 |
92% |
-23.0% |
12% |
1.22% |
KKR Income Opportunities Fund |
( KIO ) |
High Yield |
-9.60% |
10.39% |
-1.0 |
106% |
-16.7% |
42% |
1.32% |
Blackstone Strategic Credit |
( BGB ) |
Senior Loans |
-9.47% |
6.89% |
-0.7 |
108% |
-9.8% |
39% |
1.32% |
2. Top 10 lowest "high-high-low" z-scores
The following data show the 10 CEFs with the lowest z-scores, yield >6.5%, coverage >85% and premium/discount <+5%. Leverage and baseline expense are shown for comparison.
Fund |
Ticker |
Category |
Z |
P/D |
Yield |
Cov |
1Y NAV |
Lev |
BE |
Highland Floating Rate Opportunities Fd |
( HFRO ) |
Senior Loans |
-1.5 |
-25.81% |
8.11% |
116% |
18.1% |
11% |
1.61% |
BNY Mellon Alcentra Gl Crd Inc 2024 Tgt |
( DCF ) |
Multisector Income |
-1.2 |
-5.42% |
8.10% |
88% |
-15.0% |
33% |
1.65% |
Blackstone Senior Floating Rate Term |
( BSL ) |
Senior Loans |
-1.1 |
-7.33% |
6.56% |
108% |
-7.8% |
35% |
1.32% |
Western Asset Premier Bond |
( WEA ) |
Investment Grade |
-1.1 |
-8.03% |
7.17% |
110% |
-18.2% |
33% |
0.94% |
Barings Global Short Duration High Yield |
( BGH ) |
High Yield |
-1.0 |
-10.86% |
9.45% |
122% |
-13.0% |
30% |
1.62% |
Flah & Crum Dynamic Pref & Income Fund |
( DFP ) |
Preferreds |
-1.0 |
-0.06% |
8.00% |
117% |
-16.2% |
37% |
1.06% |
KKR Income Opportunities Fund |
( KIO ) |
High Yield |
-1.0 |
-9.60% |
10.39% |
106% |
-16.7% |
42% |
2.12% |
Western Asset High Yield Defined Opps |
( HYI ) |
High Yield |
-1.0 |
-5.21% |
9.09% |
85% |
-14.7% |
0% |
0.93% |
PIMCO High Income |
( PHK ) |
Multisector Income |
-1.0 |
4.92% |
11.23% |
91% |
-11.2% |
34% |
0.86% |
Templeton Emerg Mkts Income |
( TEI ) |
Emerging Market Income |
-1.0 |
-9.89% |
12.21% |
92% |
-23.0% |
12% |
1.22% |
3. Top 10 highest "high-high-low" yields
The following data show the 10 CEFs with the highest yields, coverage >85% and premium/discount <+5%. z-scores, leverage, and baseline expense are shown for comparison.
Fund |
Ticker |
Category |
Yield |
P/D |
Z |
Cov |
1Y NAV |
Lev |
BE |
Templeton Emerg Mkts Income |
( TEI ) |
Emerging Market Income |
12.21% |
-9.89% |
-1.0 |
92% |
-23.0% |
12% |
0.88% |
Pioneer Diversified High Income |
( HNW ) |
High Yield |
11.67% |
-7.87% |
-0.8 |
96% |
-16.1% |
35% |
1.58% |
PIMCO High Income |
( PHK ) |
Multisector Income |
11.23% |
4.92% |
-1.0 |
91% |
-11.2% |
34% |
0.86% |
RiverNorth Specialty Finance |
( RSF ) |
High Yield |
11.15% |
-0.31% |
0.9 |
172% |
-1.0% |
37% |
6.53% |
Western Asset High Income II |
( HIX ) |
High Yield |
10.99% |
-1.27% |
-0.1 |
91% |
-22.5% |
33% |
1.27% |
Western Asset Global High Income |
( EHI ) |
High Yield |
10.68% |
-7.35% |
-0.6 |
103% |
-22.5% |
37% |
1.37% |
Pioneer High Income |
( PHT ) |
High Yield |
10.45% |
-8.50% |
-0.8 |
107% |
-15.4% |
34% |
1.14% |
Western Asset Emerging Markets Debt |
( EMD ) |
Emerging Market Income |
10.43% |
-8.87% |
-0.1 |
101% |
-26.9% |
36% |
1.30% |
KKR Income Opportunities Fund |
( KIO ) |
High Yield |
10.39% |
-9.60% |
-1.0 |
106% |
-16.7% |
42% |
1.32% |
DoubleLine Income Solutions Fund |
( DSL ) |
Global Income |
10.38% |
-4.33% |
0.6 |
116% |
-22.3% |
32% |
1.50% |
4. Top 10 best combination of "high-high-low" yield and discount
For possible buy candidates, it is probably a good idea to consider both yield and discount. Buying a CEF with both a high yield and discount not only gives you the opportunity to capitalize from discount contraction, but you also get "free" alpha as a result of the distribution being paid out. This is because paying out a distribution is effectively the same as liquidating part of the fund at NAV and returning the capital to the unitholders. I considered several ways to rank CEFs by a composite metric of both yield and discount. The simplest would be yield + discount, however, I disregarded this because yields and discounts may have different ranges of absolute values and a sum would be biased towards the larger set of values. I finally settled on the multiplicative product, yield x discount. This is because I consider a CEF with 7% yield and 7% discount to be more desirable than a fund with 2% yield and 12% discount, or 12% yield and 2% discount, even though each pair of quantities sum to 14%. Multiplying yield and discount together biases towards funds with both high yield and discount. Since discount is negative and yield is positive, the more negative the " DxY " metric, the better. Only funds with >6.5% yield, >85% coverage and <+5% premium/discount are considered.
Fund |
Ticker |
Category |
P/D |
Yield |
Z |
DxY |
Cov |
1Y NAV |
Lev |
BE |
Highland Floating Rate Opportunities Fd |
( HFRO ) |
Senior Loans |
-25.81% |
8.11% |
-1.5 |
-2.09 |
116% |
18.1% |
11% |
1.61% |
Principal Real Estate Income Fund |
( PGZ ) |
Real Estate |
-13.06% |
9.58% |
-0.4 |
-1.25 |
100% |
-9.2% |
33% |
2.15% |
Templeton Emerg Mkts Income |
( TEI ) |
Emerging Market Income |
-9.89% |
12.21% |
-1.0 |
-1.21 |
92% |
-23.0% |
12% |
1.47% |
Barings Global Short Duration High Yield |
( BGH ) |
High Yield |
-10.86% |
9.45% |
-1.0 |
-1.03 |
122% |
-13.0% |
30% |
1.62% |
KKR Income Opportunities Fund |
( KIO ) |
High Yield |
-9.60% |
10.39% |
-1.0 |
-1.00 |
106% |
-16.7% |
42% |
2.12% |
BNY Mellon High Yield Strategies Fund |
( DHF ) |
High Yield |
-10.43% |
9.27% |
-0.9 |
-0.97 |
103% |
-19.8% |
33% |
1.28% |
Western Asset Emerging Markets Debt |
( EMD ) |
Emerging Market Income |
-8.87% |
10.43% |
-0.1 |
-0.93 |
101% |
-26.9% |
36% |
1.30% |
Nuveen Real Asset Inc and Grwt |
( JRI ) |
Global Allocation |
-11.06% |
8.35% |
-0.6 |
-0.92 |
86% |
-8.3% |
32% |
1.32% |
Pioneer Diversified High Income |
( HNW ) |
High Yield |
-7.87% |
11.67% |
-0.8 |
-0.92 |
96% |
-16.1% |
35% |
0.88% |
Ivy High Income Opportunities Fund |
( IVH ) |
High Yield |
-11.35% |
7.99% |
-1.0 |
-0.91 |
110% |
-17.6% |
30% |
1.51% |
5 . Top 10 best combination of "high-high-low" yield, discount and z-score
This is my favorite metric because it takes into account all three factors that I always consider when buying or selling CEFs: yield, discount and z-score. The composite metric simply multiplies the three quantities together. As both discount and z-score are negative while yield is positive, the more positive the " DxYxZ " metric, the better. Only funds with >7% yield, >85% coverage and <+5% premium/discount are considered.
Fund |
Ticker |
Category |
P/D |
Yield |
Z |
DxYxZ |
Cov |
1Y NAV |
Lev |
BE |
Highland Floating Rate Opportunities Fd |
( HFRO ) |
Senior Loans |
-25.81% |
8.11% |
-1.5 |
3.12 |
116% |
18.1% |
11% |
1.32% |
Templeton Emerg Mkts Income |
( TEI ) |
Emerging Market Income |
-9.89% |
12.21% |
-1.0 |
1.17 |
92% |
-23.0% |
12% |
1.22% |
Barings Global Short Duration High Yield |
( BGH ) |
High Yield |
-10.86% |
9.45% |
-1.0 |
1.06 |
122% |
-13.0% |
30% |
1.47% |
KKR Income Opportunities Fund |
( KIO ) |
High Yield |
-9.60% |
10.39% |
-1.0 |
0.98 |
106% |
-16.7% |
42% |
2.12% |
Ivy High Income Opportunities Fund |
( IVH ) |
High Yield |
-11.35% |
7.99% |
-1.0 |
0.88 |
110% |
-17.6% |
30% |
1.51% |
BNY Mellon High Yield Strategies Fund |
( DHF ) |
High Yield |
-10.43% |
9.27% |
-0.9 |
0.84 |
103% |
-19.8% |
33% |
1.87% |
Blackstone Long-Short Credit Income |
( BGX ) |
Senior Loans |
-10.49% |
7.88% |
-0.9 |
0.75 |
112% |
-10.2% |
41% |
2.06% |
Pioneer Diversified High Income |
( HNW ) |
High Yield |
-7.87% |
11.67% |
-0.8 |
0.73 |
96% |
-16.1% |
35% |
1.58% |
Pioneer High Income |
( PHT ) |
High Yield |
-8.50% |
10.45% |
-0.8 |
0.72 |
107% |
-15.4% |
34% |
1.14% |
Pioneer Floating Rate Fund |
( PHD ) |
Senior Loans |
-9.10% |
7.81% |
-0.9 |
0.62 |
86% |
-9.2% |
36% |
1.88% |
Strategy Statement
Our goal at the CEF/ETF Income Laboratory is to provide consistent income with enhanced total returns . We achieve this by:
- Identifying the most profitable CEF and ETF opportunities.
- Avoiding mismanaged or overpriced funds that can sink your portfolio.
- Employing our unique CEF rotation strategy to " double compound " your income.
It's the combination of these factors that has allowed our Income Generator portfolio to massively outperform our fund-of-CEFs benchmark ETF ( YYY ) whilst providing growing income, too (approx. 10% CAGR).
Remember, it's really easy to put together a high-yielding CEF portfolio, but to do so profitably is another matter!
For further details see:
The 'High-High-Low' Closed-End Fund Report, July 2022