Marty Fridson is a long-standing expert in income investing; here, the editor of Forbes/Fridson Income Securities Investor looks at two specialized closed-end funds — one focuses on floating rates and the other on REITs and preferred securities.
BlackRock Floating Rate Income Strategies Fund (FRA) seeks high current income and capital preservation, consistent with investment in a diversified, albeit leveraged portfolio of floating- and variable-rate debt securities. The fund aims to achieve its objective by investing, under normal market conditions, at least 80% of its managed assets in floating- or variable-rate instruments.
A substantial portion of FRA’s managed assets are invested in secured and unsecured, non-investment grade, floating-rate senior loans. The fund may also invest in securities synthetically or through the use of derivatives.
As of 09/30/21, the portfolio consisted almost entirely of term loans, with 53.1% of the maturities in the range of 5-7 years and 34.2% in 3-5 years. Holdings were essentially all non-investment grade term loans and bonds.
FRA’s performance has been sound historically, with market price five-year and ten-year total returns of +5.11% and +6.58%, respectively. The market price total return for full-year 2021 was a strong +17.79%.
This closed-end fund is suitable for medium- to high-risk tax-deferred portfolios. Distributions are taxed on a variable basis and may include ordinary income, capital gains, and return of capital. Buy at $16.25 or lower for a 4.95% annualized yield.
Cohen & Steers REIT and Preferred and Income Fund (RNP) is primarily a REIT and preferred fund. Its primary objective is high current income though investment in real estate common stocks and preferred securities. RNP’s secondary investment objective is capital appreciation.
We initially recommended RNP in February 2015 as a Buy for all risk portfolios. The fund changed its distribution policy in December 2017, implementing a managed distribution policy to deliver regular monthly payments at a fixed rate per common share.
The new policy provides greater flexibility to realize long-term capital gains throughout the year and to distribute the gains on a regular monthly basis. The fund’s monthly distributions may include long-term and short-term capital gains, net investment income, and return of capital for federal income tax purposes.
As of 09/30/21, RNP’s top five holdings as a percent of market value were common REIT equities, represented by American Tower (AMT), Prologis (PLD), Public Storage (2.8%), UDR (UDR), and Simon Property (SPG).
RNP’s total return performance has been solid historically. The fund posted an exceptionally strong market price total return of +32.88% for full-year 2021, helped by the economy’s strong reopening. Buy at $29.50 or lower for a 5.53% annualized yield.