NPFD: Don't Overlook The Interest Rate Risk Of This 10%-Yielding CEF

2025-01-20 07:34:55 ET

Summary

• The Nuveen Variable Rate Preferred & Income Fund offers a high 10.75% yield, outperforming major domestic fixed-income indices, but carries higher risk due to leverage.
• Despite a 6.19% share price increase since May 2024, the fund's net asset value declined by 0.85%, indicating potential overvaluation.
• The fund's most recent holdings report suggests that its exposure to variable-rate securities is lower than one would expect.
• The fund's distribution is covered but relies on unrealized capital gains, and its current 5.98% discount is narrower than its historical average.
• The fund has an expense ratio much higher than most ETFs, and it is still higher than its peers even after excluding leverage.

The Nuveen Variable Rate Preferred & Income Fund (NPFD) is an interesting closed-end fund that income-seeking investors may wish to consider as a method of achieving their goals and earning a high level of income from the assets in their portfolios. The fund manages to do reasonably well at this task, as it boasts a 10.75% yield at the current market price. This is considerably higher than any of the major domestic fixed-income indices:

As we can see, the Nuveen Variable Rate Preferred & Income Fund even manages to beat the current yields of the junk bond and domestic preferred stock indices. These indices are frequently purchased by investors who are seeking to earn a high level of dividend income, so the fact that this fund manages to beat them in terms of yield makes it a very viable alternative. After all, by purchasing an index fund instead of the Nuveen Variable Rate Preferred & Income Fund, an investor would be sacrificing a significant amount of income....

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