Marty Fridson, is a leading dividend investing expert; here, the editor Forbes/Fridson Income Securities Investor looks at two recommended floating rate funds.
The primary objective at Blackstone/GSO Senior Floating Rate Term Fund (BSL) is delivering high current income with preservation of capital. Under normal market conditions, this closed-end fund invests at least 80% of its managed assets in senior, secured floating rate loans.
The fund also invests in second-lien loans and high yield bonds. BSL is a limited term fund and without shareholder approval to extend the fund, BSL it will be dissolved on or around May 31, 2027. We initially recommended BSL in April 2017 as a Buy for medium- to high-risk tax-deferred portfolios.
As of 12/31/21, first-lien loans accounted for 83.6% of the portfolio. The top five industry sectors were Electronics/Electric (19.6%), Healthcare (16.0%), Business Equipment & Services (13.9%), Building & Development (4.7%), and Insurance (4.4%).
Portfolio holdings are all rated non-investment grade, with more than 80% of the fund’s distribution concentrated in ‘B’ rated loans and securities. BSL’s top five issuers as of 12/31/21 were Veritas (1.0%), NFP (1.0%), Park River Holdings (0.9%), AqGen Ascensus (0.9%), and Carestream Health (0.9%).
The fund’s performance record has been relatively stable with solid results. BS’s market price total return was a very strong +28.39% for full-year 2021, but -10.15% for the year-to-date period ended 03/31/22.
Distributions vary and have been taxed largely as ordinary income. This closed-end investment is suitable for medium- to high-risk tax-deferred portfolios. Buy at $19.00 or lower for a 4.48% annualized yield.
The investment objective at Nuveen Floating Rate Income Fund (JFR) is to achieve a high level of current income with capital preservation. The fund’s strategy under normal market conditions is to invest at least 80% of its managed assets in adjustable rate loans.
Other investments may include unsecured senior fixed rate loans, as well as subordinated loans. Industry risk was well diversified as of 12/31/21, with Hotels, Restaurants & Leisure (11.4%), Media (11.3%), Software (7.0%), Healthcare Providers & Services (7.0%), and Oil, Gas & Consumable Fuels (4.9%) accounting for the portfolio’s top five industries.
Approximately 85% of JFR’s investments were rated non-investment grade. Country risk was dominated by the U.S., representing 81.9% of the portfolio. The top five issuers were Restaurant Brands International (2.5%), Intelsat (1.4%), CSC Holdings (1.4%), Clear Channel Outdoor Holdings (1.4%), and Fieldwood Energy (1.2). Portfolio duration was short, at under one year.
Investment performance has been solid, with the fund reporting a +24.66% market price total return for 2021. Total return for the year-to-date period ended 03/31/22 was relatively flat.
JFR has adopted a managed distribution plan, which is taxed on a variable basis, based on current income, capital gains, and/or return of capital. This investment is suitable for medium- to high-risk tax-deferred portfolios. Buy at $13.50 or lower for a 5.15% annualized yield.