Summary
- The markets have added to the gains they started in October.
- I add to my investments every month; however, this month, I did quite a bit of movement with several positions I sold too.
- The opportunities weren't always with similar funds, but the decisions were valuation driven.
This article was originally published to members of the CEF/ETF Income Laboratory on December 1st, 2022.
The major indexes saw gains over the last month after the rally we saw from them in the previous month. If you recall, the Dow Jones Industrial Average in October had a particularly strong move upward of around 14%. The last day showed a strong rally as Fed Chairman Powell mentioned that smaller rate hikes could start in December.
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If we are to get to positive territory for this year, the S&P 500 and Nasdaq still have a lot of work to do. While it isn't impossible, it does seem improbable. On the other hand, the DJIA is within striking distance at this point.
During the month, we saw discounts for closed-end funds narrow . The latest reported discount of all CEFs comes in at 6.4%, a narrowing from the 7.24% last month.
CEF Discount/Premium (RiverNorth)
That being said, there were still some good opportunities in the CEF space for attractively priced funds. I might be biased, though, since I buy at least something every single month to build up my income. This goes for CEFs and individual stocks. I add to ETFs on occasion, too. That's regardless of what the broader market is or isn't doing.
The only thing different in the latest month was that I did a bit more selling than usual. I can go months without selling any positions, but this month I sold several to take advantage of what I thought were better values elsewhere. At the end of the day, I still put more capital to work, over and above the proceeds from the sales.
Tortoise Energy Infrastructure ( TYG )
Adding to TYG was simply following through with what I had previously said I was going to do. The fund went through a tender offer, and I took that cash plus some more and bought a larger position in the fund. They paid me $38.96 for 11.45% of my position. I turned around and bought more shares at $33.85. It seemed like a pretty great exchange to me.
Next year they are looking to make the same tender offer with a similar discount trigger. Given the caution of investors to invest in leveraged CEFs with an energy tilt, it likely will trigger again. I look forward to carrying out the same strategy at that time, all else being equal.
Cohen & Steers Real Estate Opportunities and Income Fund ( RLTY )
RLTY got two buys from me this month.
First, I sold Eagle Point Income Company ( EIC ), a wholly different type of fund. That was thanks to Stanford Chemist's trade alert noting the abnormally large premium of an estimated 22%+. RLTY was a fund that I've wanted to add to my portfolio, but I find it hard to add new names when I already hold around 50 CEFs. So the opportunity arose, and that's why I made that transaction.
Then, the second batch of shares to be picked up was from selling Nuveen Real Estate Income Fund ( JRS ). This was a more even swap that didn't really change my sector exposure overall. The difference between the valuations here on the discounts made it feel like a no-brainer. RLTY might be a new fund, but Cohen & Steers management in the REIT space is not.
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The better performance from RLTY on a total NAV return basis since the fund's launch is already promising too.
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Western Asset Diversified Income Fund ( WDI )
This was another case of not wanting to add more positions to keep track of. So, I looked for a position to sell, which ended up being PIMCO Income Strategy Fund II ( PFN ). A fantastic fund, to be sure. However, the valuations between the two made sense for a potential swap. It also helped that both are similar in that they are multi-sector bond funds. They aren't restricted to a single area of the fixed-income market.
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It was also the fact that I already hold a sizeable position in PIMCO Dynamic Income Opportunities Fund ( PDO ) and PIMCO Dynamic Income Fund ( PDI ). I felt like taking down some PIMCO exposure and letting the Western Asset team manage some of my fixed-income exposure. Which is certainly no slouch in the fixed-income space.
Now, to be completely transparent, since WDI launched, PFN has been the better-performing fund. This was particularly noteworthy when they started to diverge drastically at the beginning of May this year.
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So even if the discount for WDI does contract from here, it would seemingly have more work to do for this bet to pay off for me. At least if the same trajectory were to continue going forward, and as we know, past results are not a guarantee of future returns!
I recently provided an update for WDI with a deeper look.
XAI Octagon Floating Rate & Alternative Income Term Trust ( XFLT )
XFLT has been a fund I've been accumulating over the last several years now. This latest buy was triggered due to selling out from First Trust Specialty Finance & Financial Opportunities Fund ( FGB ). These definitely aren't similar funds, but the run-up in FGB has been quite strong recently. I've noted in my updates on this fund, with one being rather recently , that this isn't a fund you hold for long. I think FGB is best kept as a trading fund.
So I bought FGB on July 7th and sold it on November 22nd. Stanford Chemist also sent a trade alert out to sell the position, which likely played a role in dropping the price so drastically. It is a tiny fund, so moving the needle doesn't take much.
XFLT Discount/Premium (CEFConnect)
It went from a narrow discount to a large discount that could have been taken advantage of again, but after selling, I didn't catch just how far it dropped later in the day. So that was a missed opportunity to reload back in. Also, during my time holding, it went through two ex-dividend dates. So I collected an additional $0.165 during that time.
With XFLT, the fund just so happened to be attractively priced, and so I took the opportunity to shift the capital plus some to that position. I covered XFLT in October , which was also the last month that I added to my XFLT position.
Conclusion
Overall, I added to four different funds for the month. Two new ones to my portfolio completely are RLTY and WDI, and two positions that I've already held. I also sold out of four different positions for the month. The valuation differences were the driving factor for several of the moves. At the same time, I still put more capital to work, as I do every month to build up my growing income.
For further details see:
4 Closed-End Fund Buys In The Month Of November 2022