Tekla Healthcare Opportunities Fund (THQ) — our latest "pick of the month" — sports a 5.56% current yield, achieved with moderate leverage of 18.17%, notes income expert Marty Fridson, editor of Forbes/Fridson Income Securities Investor.
Much of this closed-end fund’s distribution is taxed at a favorable rate and it’s currently trading slightly below net asset value. Year-to-date total return is a solid 16.24%.
THQ invests primarily in healthcare industry sectors such as providers & servicers, equipment & supplies, pharmaceuticals, and biotechnology. The fund’s investment objective seeks current income and long-term appreciation.
Its strategy is to invest 50%-85% of managed assets in equity securities, preferred stock, convertible issues, and warrants. THQ generally limits its investment in convertible issues to 30% and debt instruments to 15%.
As of 06/30/21 the fund’s portfolio was dominated by Healthcare Providers & Servicers (23.0%), Pharmaceuticals (21.4%), Healthcare Equipment & Supplies (17.0%) and Biotechnology (15.0%).
The top five holdings were UnitedHealth Group, Inc. (UNH), at 7.7%; Johnson & Johnson (JNJ), at 5.1%; AbbVie (ABBV), at 4.2%; Abbott Laboratories (ABT), at 4.0%; and Cigna (CI), at 3.7%.
The fund’s total return performance has been solid over the last several years, with a 16.24% market price total return through the YTD period ended 09/30/21.
We initially recommended THQ in February 2016 as suitable for high-risk portfolios. This investment remains suitable for high-risk portfolios, but we are now recommending THQ for medium-risk portfolios as well.
Distributions are taxed on a variable basis, but largely at a lower rate, given the large component of common stocks in the portfolio and long-term capital gains. With this new review we are changing our fair value price to $27.00 from $17.00.
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