CEFs With Yield: The Blackrock Multi Sector Income Fund (BIT)
The portfolio is generally constructed of low-duration fixed-income, mortgage-backed securities, and securitized products. With its heaviest and most differentiated weighting is in securitized products such as asset backed securities (ABSes), collateralized loan obligations (CLOs) and collateralized mortgage obligations (CMOs). With smaller allocations to high-yield bonds, bank loans, non-U.S. developed, emerging-market and investment-grade credit.
BIT’s portfolio, which is leveraged by 42%, could exhibit excellent relative performance in a longer-term rising-rate environment due to the floating rate nature of many securitized products, and the moderate use of interest rate swaps to offset volatility. As a result, its current effective duration rests at just 3.02 years. In addition, the fund has very few restrictions on the sectors of the market in which it can operate in, which give the management team added flexibility to meet the funds distribution policy.
BIT’s portfolio currently generates roughly 11.7 cents a month in earnings compared with the 9.3 cents a month is distributes to shareholders, making for an attractive margin of UNII.
While portfolio earnings and distribution policies are just one important metric of sound CEF management, investors should be vigilant in their due diligence and ongoing monitoring. Developing a plan and then implementing it decisively will always yield the most favorable result.
Michael Fabian is Managing Partner and Chief Investment Officer of FMD Capital Management. As of this writing, he held PDI and BIT. To get more investor insights from FMD Capital, visit their blog.