Income Solutions: Closed-End Discount

12/27/2016 7:00 am EST

Focus: FUNDS

Robert Carlson

Editor, Retirement Watch

This closed-end fund was declining in value before the election, likely because of fears of rising interest rates, notes fund expert Robert Carlson, editor of Retirement Watch.

As a result, DoubleLine Income Solutions (DSL) was becoming more of a bargain, because its holdings were rising in value as its own shares were declining in value. The discount to net asset value of the fund’s shares increased, too.

Those trends reversed, at least partly, because Jeffrey Gundlach recently spoke favorably of the fund; he pointed out the bargain in the shares and explained that it was better positioned than most income funds.

The fund is up 3.59% in the last four weeks and now is up 27.15% for 2016. The yield is 9.63%.

Unlike many closed-end funds, the distributions come entirely from income earned by the fund. The discount now is 8.26%.

DSL has a mandate to invest in pretty much any sector of the fixed-income universe. It is co-managed by Gundlach and other key members of the DoubleLine team.

Gundlach has been concerned about rising interest rates in the United States. During 2016, the fund has been positioned primarily in emerging market bonds and high-yield bonds, which should minimize any losses from rising rates.

About 45% of the fund is in emerging market securities, and another 18% is in high-yield corporate bonds.

Mortgage securities are another 11% of the fund. Yet another 10% or so of the fund is in bank loans, which have variable interest rates.

We pointed out for a couple of months that the fund was becoming a bargain as its share price declined while the value of its portfolio increased.

Last month, investors saw the value and began buying. We continue to recommend the fund in our Retirement Paycheck Portfolio.

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