Two Funds for a Retirement Paycheck

04/29/2020 5:00 am EST

Focus: FUNDS

Robert Carlson

Editor, Retirement Watch

With yields on U.S. government bonds at historic lows, investors in search of income need the Retirement Paycheck portfolio more than ever, cautions Bob Carlson, editor of the industry-leading advisory service, Retirement Watch.

The portfolio expands the investment universe to include preferred securities, high-yield bonds, master limited partnerships, closed-end funds and more.

Our Retirement Paycheck portfolio owns a combination of REITs and preferred securities through Cohen & Steers REIT & Preferred Income (RNP). This closed-end fund uses about 26% leverage.

The fund had a sharp decline during the liquidity crunch in March when its discount to net asset value jumped. It recovered a lot of that ground when liquidity was restored.

The discount recently was 9.92%, compared to a six-month average discount of 4.82%. The distribution yield is 7.92%.  The fund declined 19.58% for the year to date. In the last 12 months, it is down 3.36%.

The fund is split about equally between REITs and preferred securities similar to those in the Cohen & Steers funds dedicated to those assets discussed earlier.

A less volatile fund in our Retirement Paycheck portfollio is TCW Strategic Income (TSI), a closed-end fund that doesn’t use leverage. TSI traded at a small premium before the pandemic, fell to a small discount during the liquidity crisis and now trades at a 0.56% premium to net asset value.

The six-month average is a 1.47% discount. In the last four weeks, the fund is down only 0.22%. For the year to date, it lost 4.37% and during the last 12 months, it is up 6.44%. The yield is 5.99%.

The fund can invest in any fixed-income asset anywhere in the world. But most of the fund is invested in mortgage securities composed of mortgages that aren’t insured by government agencies. It also owns small amounts of different types of bonds.

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