Marty Fridson is a leading specialist in income investing strategies, include complex and hybrid securities; here, he looks at two closed-end funds. The advisor is the editor of Forbes/Fridson Income Securities Investor — and a participant in The MoneyShow Las Vegas on May 9-11.
BlackRock Multi-Sector Income Trust (BIT) is a leveraged fund, with the primary investment objective of high current income and secondarily towards capital appreciation. BTI’s investments cut across multiple sectors of the fixed income market, with the objective of delivering attractive risk-adjusted returns.
The trust seeks to achieve its investment objectives by investing, under normal market conditions, at least 80% of its assets in debt and loan instruments as well as other investments with similar characteristics. BTI may also invest synthetically through the use of derivatives.
The trust’s top sectors as of 12/31/21 was dominated by High Yield (37.4%), Securitized Products (14.6%), Agency Mortgages (13.6%), Non-US Developed (10.9%), and Investment Grade Credit (9.3%). Almost 70.0% of portfolio holdings were rated non-investment grade.
BIT’s top-five holdings included the Federal National Mortgage Association (6.14%), Uniform MBS (5.62%), Federal Home Loan Mortgage Corp. (1.23%), Goldman Sachs (1.11%) and Wells Fargo (0.95%). Market price total return performance over the last five-year period has been strong. BTI reported a solid market price total return of +12.27% for the full-year 2021 period.
This investment is suitable for medium- to high-risk portfolios. Distributions are taxed on a variable basis, comprised of the trusts’ income, net realized capital gains, and if need be, a return of capital. Buy at $20.50 or lower for a 7.26% annualized yield.
First Trust New Opportunities MLP & Energy Fund (FPL) s a three-star-rated fund by Morningstar. FPL’s investment objective is to provide investors with a high level of total return, through an emphasis on current distributions.
The fund’s strategy is to invest in a portfolio of income-generating securities, with a focus on publicly traded master limited partnerships (MLPs) and MLP-related entities in the energy sector and energy utilities industries.
Under normal market conditions, the fund will invest up to 85% of its managed assets in both equity and debt securities of MLPs and other energy sector and energy utility companies.
FPL typically invests at least 65% of its managed assets in equity securities. As of 02/28/22, the portfolio’s industry breakdown was led by Petroleum Product Transmission (29.7%), Natural Gas Transmission (25.4%), Electric Power & Transmission (24.8%) and Crude Oil Transmission (10.4%).
FPL’s top holdings at the same date were Enterprise Products Partners, LP (EPD), at 13.4%; Magellan Midstream Partners, LP (MMP), at 8.7%: Cheniere Energy Partners, LP (LNG), at 6.4%; and Energy Transfer, LP (ET), at 6.0%.
The fund posted a strong market price total return of +39.29% for the full-year 2021 period, on the back of rebounding energy prices. Distributions are taxed on a variable basis, with FPL issuing a 1099 to investors. This investment is suitable for medium- to high-risk portfolios. Buy at $8.25 or lower for a 5.53% annualized yield.