Closed-End Funds: Seeking Stable Yields From CLO Baby Bonds And Preferred

2025-03-20 11:17:06 ET

Summary

• Collateralized loan obligation CEFs offer high yields but come with significant leverage, volatility and higher risk, making them less appropriate for all income investors.
• Baby bonds and preferred offerings from CLO CEFs provide safer, more stable income, balancing risk-reward when it comes to seeking income.
• We have new offerings in the space since our last update, leading to greater diversification potential and increasing the viability of setting up a ladder of maturities.

Written by Nick Ackerman, co-produced by Stanford Chemist.

The collateralized loan obligation closed-end funds, or the "CLO CEFs," offer tremendously tempting yields, particularly from the equity-focused CLO CEFs. Oxford Lane Capital Corp ( OXLC ) offers a 22%+ distribution yield declared out to June, Eagle Point Credit Co ( ECC ) is offering similar, and OFS Credit Company ( OCCI ) has a yield coming in at around 20%. These are certainly alluring distribution rates for income investors, but those are balanced out by being highly leveraged and subject to some significant volatility during economic hardships. We've seen just how volatile they can be lately, and that's causing their yields to spike even higher....

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