Many income seekers would be well served looking at closed-end funds.
And three funds worth a closer look, according to David Tankin, a fixed-income senior research analyst and portfolio manager with a Texas-based bank, are PCM Fund (PCM); Nuveen Quality Municipal Income Fund (NAD); and Voya Prime Rate Trust (PPR).
PCM, which is managed by PIMCO and has an 8.71% yield as of June 30, 2018, seeks to achieve high current income by investing in a portfolio primariy comprising commercial mortgage-backed securities.
According to PIMCO, the fund may invest in credit derivatives, such as credit default swaps, and other derivative instruments for gaining synthetic exposures. And the fund may invest without limit in securities that are, at the time of purchase, rated below investment grade or unrated but judged by PIMCO to be of comparable quality.
To be fair, the fund is not without negative traits. The total expense ratio (excluding interest expense), at 1.540%, is high according to Tankin. And the total effective leverage was 38.4% as of June 30, 2018. And lastly, the fund is trading at a 7.93% premium. Read more from Pimco.
One note: Consider owning this fund in a tax-deferred or tax-free account instead of a taxable account to avoid paying ordinary income taxes on distributions.
IRS USD 1.75000 12/21/16-7Y CME_Receive
CIRS USD 5.25Y MAT 2.86% 4/2018 MYC_Receive
IRS USD 2.50000 06/20/18-20Y CME_Pay
IRS USD 2.00000 06/20/18-5Y CME_Pay
CWABS Asset-Backed Certificates Trust 2006-ABC1 2.11%
NAD, which is managed by Nuveen and has a yield of 5.19%, seeks to provide current income exempt from regular federal income tax and to enhance portfolio value. The fund invests in municipal securities that are exempt from federal income taxes. The fund uses leverage. By investment policy, the fund may invest up to 35% of its managed assets in municipal securities rated at the time of investment BBB and below or judged by the manager to be of comparable quality.
According to Tankin, leverage is low at 5.41% and operating expenses are 0.94%. The fund is trading at a 11.75% discount as of July 19, 2017.
CLARK CNTY NEV ARPT DEPT OF AVIATION 5.75%
SALT LAKE CITY UTAH 5%
E 470 PUB HWY AUTH COLO 0%
SALT VERDE FINL CORP SR GAS 5%
SAN JOAQUIN HILLS CALIF TRANSN CORRIDOR AGY 5%
PPR, which is managed by Voya and has a 5.84% yield, seeks a high a level of current income, consistent with preservation of capital. The fund invests at least 80% of net assets in U.S.-dollar-denominated, floating-rate, secured senior loans; targets top-tier, non-investment grade senior loans seeking to achieve superior long-term risk-adjusted returns with lower volatility; and uses leverage to enhance return potential.
One positive, according to Tanking, is that fund's underlying collateral is floating rate loans.
The negatives: leverage is 29.43% and fees are 1.63%.
The fund is trading at an 11.88% discount.
Consider owning this fund in a tax-deferred or tax-free account instead of a taxable account to avoid paying ordinary income taxes on distributions.
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