The Fund Offers a Dynamic Opportunity in Bank Loans

07/26/2019 5:00 am EST

Focus: ETFS

Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

Skilled management can be worth well than its expenses in any investment vehicle, asserts Brett Owens, fund specialist, income expert and editor of Contrarian Outlook.

However, when you’re dealing with an inaccessible alternative field such as bank loans, a steady guiding hand is downright necessary. Enter Scott Baskind, Nuno Caetano and Philip Yarrow, the three managers overseeing Invesco Dynamic Credit Opportunities Fund (VTA).

The closed-end fund invests in floating or variable senior loans across numerous industries and geographic regions. This trio boasts a combined 47 years of tenure with Invesco, and more years of experience piled atop that.

That experience shows. Dynamic Credit has pummeled the iShares Barclays Aggregate Bond Fund (AGG) benchmark in almost every major time period, including a 10-year average annual return of 10.4% that dwarfs the AGG’s 3.9%.

The fund itself is about three-quarters invested in first-lien loans, 13% in bonds, and small allocations to second-lien loans, structured products and other debt.

Almost all of it is below investment-grade, though more than 70% of it is at least in the upper levels of junk: Moody’s Ba and B ratings. And there is some international diversity: 72% of the fund is American loans, but there’s single-digit exposure to the U.K., Luxembourg, Sweden and France, too.

VTA commands a premium price. Its 3.5% in annual expenses is high even by CEF standards. But there simply aren’t many funds that do what Invesco Dynamic Credit Opportunities does, and does so well.

But you are getting a discount right now–an 11% discount to the fund’s net asset value (NAV), which means you’re essentially paying 89 cents on the dollar for VTA’s well-selected holdings.

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