Monday
Oct022006
Floating Rate Closed-End Funds at Full Value. (PHD)
October 2, 2006 at 2:23 PM
Today, I sold all my shares of Pioneer Floating Rate Tr (PHD) at $19.21. (closed end fund, exchange traded fund)
Pioneer Floating Rate Trust holds mainly floating rate bank loans and bonds. Recently, the increase in short term interest rates have meant that yields on floating rate loans have increased - most bank loans are set at a spread over LIBOR (London Interbank Offered Rate). Because of the increase in current yield buyers in search of yield have bid up the prices of these funds. Another reason for the increase in the prices of closed-end floating rate funds has been a decrease in loan yields to historic lows. Lenders are accepting a lower risk premium to take on corporate debt. This phenomenon is happening in the high yield (junk bond) market as well. In other words, these loans are priced for a good economy. I'm happy to sell to people who assume everything will go well and who are desperate to buy.
There is a third factor telling me it's time to sell. The discount of this fund is at a historic low. According to the closed-end fund association this is just 1.2% below the net asset value (NAV) of $19.46. It is rare that a closed end fund focused on fixed income trades anywhere near NAV. Additionally, the normal discount on this fund (I bought it at a 10% discount to NAV) have decreased. Since closed end funds usually have high fees (PHD fees are 1.23% per annum), I only see the point in buying closed-end funds at significant discounts (10% or more)
Other examples of closed end floating rate loan funds that I monitor can be found in the "Weekly Closed-End Funds" section of the print version Barrons. Look in the "Loan Participation Funds" section where you can find current yields, NAVs and discounts/premiums to NAV. Some funds are still trading at discounts to NAV. Here is a partial list of some of the funds I monitor: TLI, EFT, EFR, FRB (current discount to NAV 8%), FRA (current discount 7.7%, NSL, PFL, PFN, VVR.
Disclosure: I sold all my PHD holdings today (October 2, 2006). I do not currently own any of the other funds mentioned. I have owned FRB and FRA in the past two years. Accounts that I help watch for friends or family hold FRB. I am not a paid money manager.
Disclaimer: Nothing in this web log is meant to be a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult your own investment professional before buying or selling any security.
Pioneer Floating Rate Trust holds mainly floating rate bank loans and bonds. Recently, the increase in short term interest rates have meant that yields on floating rate loans have increased - most bank loans are set at a spread over LIBOR (London Interbank Offered Rate). Because of the increase in current yield buyers in search of yield have bid up the prices of these funds. Another reason for the increase in the prices of closed-end floating rate funds has been a decrease in loan yields to historic lows. Lenders are accepting a lower risk premium to take on corporate debt. This phenomenon is happening in the high yield (junk bond) market as well. In other words, these loans are priced for a good economy. I'm happy to sell to people who assume everything will go well and who are desperate to buy.
There is a third factor telling me it's time to sell. The discount of this fund is at a historic low. According to the closed-end fund association this is just 1.2% below the net asset value (NAV) of $19.46. It is rare that a closed end fund focused on fixed income trades anywhere near NAV. Additionally, the normal discount on this fund (I bought it at a 10% discount to NAV) have decreased. Since closed end funds usually have high fees (PHD fees are 1.23% per annum), I only see the point in buying closed-end funds at significant discounts (10% or more)
Other examples of closed end floating rate loan funds that I monitor can be found in the "Weekly Closed-End Funds" section of the print version Barrons. Look in the "Loan Participation Funds" section where you can find current yields, NAVs and discounts/premiums to NAV. Some funds are still trading at discounts to NAV. Here is a partial list of some of the funds I monitor: TLI, EFT, EFR, FRB (current discount to NAV 8%), FRA (current discount 7.7%, NSL, PFL, PFN, VVR.
Disclosure: I sold all my PHD holdings today (October 2, 2006). I do not currently own any of the other funds mentioned. I have owned FRB and FRA in the past two years. Accounts that I help watch for friends or family hold FRB. I am not a paid money manager.
Disclaimer: Nothing in this web log is meant to be a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult your own investment professional before buying or selling any security.
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