- 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