{"id":35104,"date":"2023-07-13T09:45:06","date_gmt":"2023-07-13T13:45:06","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/this-10-yield-duo-has-27-downside\/"},"modified":"2023-07-13T09:45:08","modified_gmt":"2023-07-13T13:45:08","slug":"this-10-yield-duo-has-27-downside","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=35104","title":{"rendered":"This 10%+ Yield Duo Has 27% Downside"},"content":{"rendered":"
\n

\u201cCoach Brett, how many points do I have?\u201d<\/p>\n

My star player, Captain K, was dominating<\/em> the basketball game. He\u2019d steal the ball, storm down the court, and drain the shot. Then retreat into a defensive position and do it all over again.<\/p>\n

Two points after two points after two points. I\u2019d have lost count if I had to count. Fortunately though, we weren\u2019t keeping score.<\/p>\n

Most leagues these days don\u2019t keep score when the players are only five years old. The run is more important than the result.<\/p>\n

But my man K knew he was \u201ckilling it,\u201d as his dad told him from the sidelines! So, your investment strategist\u2014and Saturday morning coach\u2014wondered if he could inspire K to involve his overwhelmed teammates.<\/p>\n

After all, our opponents were doing their best to swarm our star player, but he was scoring anyway. But maybe, just maybe, he could drop a pass off to a teammate for a wide-open shot? A potential glory<\/em> moment?<\/p>\n

<\/fbs-ad><\/p>\n

\u201cYou know K, for really good players, it isn\u2019t always about how many points they score.\u201d<\/p>\n

I paused for effect.<\/p>\n

\u201cSometimes their greatness is defined by how many points they can get for their teammates.\u201d<\/p>\n

Our most valuable player stared at me, unimpressed.<\/p>\n

\u201cIsn\u2019t that cheating?\u201d<\/p>\n

He walked away. I cracked up. In the literal sense, he was 100% correct\u2014players cannot in fact score points specifically for their teammates.<\/p>\n

I had jumped ahead to the advanced concepts of drawing defenders and passing to wide-open teammates. Generating easy shots. Points for them, if you will\u2014which, yes, they score for themselves!<\/p>\n

This is perhaps a legal<\/em> way to \u201ccheat.\u201d Or gain an advantage. It\u2019s within the rules. I\u2019ll have to explain that in a future practice.<\/p>\n

(To his credit, my man K did<\/em> drop two beautiful passes to teammates after our talk. Perhaps my words got through. Or perhaps I analyze five-year-old hoops too much.)<\/p>\n

What\u2019s the equivalent of \u201clegal cheating\u201d in the dividend world? That\u2019s easy: Buying closed-end funds (CEFs) at discounts. It\u2019s literally a free lunch. (Like what we treated our players to after the Big Game.)<\/p>\n

Four months ago, we highlighted DoubleLine Yield Opportunities (DLY)<\/strong> as the maraschino cherry of bond funds:<\/p>\n

\u201cIt\u2019s run by the \u201cBond God\u201d Jeffrey Gundlach and his crew, yields 10% and trades at an 8% discount to its net asset value (NAV). A cherry indeed!<\/em><\/p>\n

Here\u2019s how that works. The bonds that DoubleLine owns in DLY add up to an NAV of $15.28. But as I write, the fund trades around $14 per share.<\/em><\/p>\n

This means we have an 8% discount window (eight-point-three percent, to be exact). If and when this window shuts, as it has for DLY\u2019s two sister funds, it will equal price upside for us.\u201d<\/em><\/p>\n

That window is already half shut. DLY now trades for ninety-six<\/em> cents on the dollar, 4% narrower in four months.<\/p>\n

DLY\u2019s total return since then has been\u2014wait for it\u20144.3%, which annualizes to 13%+! Which, of course, is splendid for a safe bond fund.<\/p>\n

The fund is still<\/em> a decent deal here, yielding 9.6%. Nothing to sneeze at! Sister fund DoubleLine Income Solutions (DSL)<\/strong> has already seen its<\/em> markdown disappear. Opportunistic investors may want to grab some discounted DLY (pronounced \u201cdilly\u201d by the DoubleLine team) before it\u2019s fully priced.<\/p>\n

Guggenheim Strategic Opportunities Fund (GOF)<\/strong>, meanwhile, is the \u201cbad shot\u201d of bond funds. GOF trades at a 28% premium<\/em> to its NAV. Which is a 32% surcharge over the DLY.<\/p>\n

Guggenheim is a fine shop. But c\u2019mon, they don\u2019t have a fixed-income deity like Gundlach at the helm. (Who does?)<\/p>\n

As a value-focused investor, I\u2019m hesitant to pay $1 for $1 in assets. We contrarians demand discounts<\/em>. Paying $1.28 for a mere $1 in bonds is pure insanity.<\/p>\n

Can<\/em> it work? Sure, if you have years\u2026 But we\u2019re not chucking up half-court shots here at Contrarian Outlook. We\u2019re playing the dividend percentages.<\/p>\n

Investors are being lured by GOF\u2019s 13.7% headline yield. That\u2019s great, but the fund has 28% downside<\/em> if it merely trends towards fair value. No thanks!<\/p>\n

GOF is the biggest bad idea on the bond board. Its runner up is PIMCO Corporate and Opportunity Fund (PTY)<\/strong>, trading at a nearly<\/em>-as-offensive 27% premium to its<\/em> NAV.<\/p>\n

Yes, PIMCO is a primo bond shop. It\u2019s been so since the days of the \u201cBond King\u201d Bill Gross.<\/p>\n

Like all kings, Gross was deposed years back. For good reason\u2014PIMCO had his successor already identified in the form of Dan \u201cBeast\u201d Ivascyn (yes, that\u2019s actually his nickname on the Street).<\/p>\n

Who doesn\u2019t want to invest alongside a bond Beast? (we\u2019ve got the God, so why not the Beast?) I get the love for PIMCO, but I pity the fool who buys PTY!<\/p>\n

If you\u2019re going to insist on investing with PIMCO, why not cut that 27-cent premium down to three? PIMCO Dynamic Income Opportunities Fund (PDO)<\/strong> trades at 103% of NAV. Not exactly a steal, but a heck of a better deal than PTY at 127% of NAV. Plus, PDO yields more!<\/p>\n

Ideally, we do<\/em> demand a discount. Why choose between a big yield and steady upside when we can have both?<\/p>\n

Brett Owens is chief investment strategist for <\/em>Contrarian Outlook<\/em>. For more great income ideas, get your free copy his latest special report: <\/em>Your Early Retirement Portfolio: Huge Dividends\u2014Every Month\u2014Forever.<\/p>\n

Disclosure: none<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

\u201cCoach Brett, how many points do I have?\u201d My star player, Captain K, was dominating the basketball game. He\u2019d steal the ball, storm down the court, and drain the shot. Then retreat into a defensive position and do it all over again. Two points after two points after two points. I\u2019d have lost count if […]<\/p>\n","protected":false},"author":1,"featured_media":35105,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-35104","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets","tag-featured"],"yoast_head":"\nThis 10%+ Yield Duo Has 27% Downside | iFintechWorld<\/title>\n<meta name=\"description\" content=\"\u201cCoach Brett, how many points do I have?\u201d My star player, Captain K, was dominating the basketball game. 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