That 12.7% Yield Likes Rising Rates (And It’s Cheap Now) – Contrarian Perspectives

Usually in a bear market like this, Something work somewhere. But I think you’ll agree that since the start of 2022, that “something” has been hard to pin down.

Treasuries are down about 23% on the year. And we know where the stock market is.

Cash, of course, will always free you from stock or bond market volatility. But staying in cash for too long exposes you to today’s high inflation. And of course, the cash pays no dividends – and that’s just not an option for those of us looking to fund our retirement solely with dividends. This strategy allows you to largely eliminate market volatility, which is why it is a goal that we aim for in my CEF Insider advisory.

At present, for example, we recommend that you continue to hold high-quality, high-yielding securities, such as the closed-end funds (CEFs) in the portfolio of CEF insider, which pay north of 8%, on average, with the vast majority of our picks paying dividends monthly.

And despite all the uncertainty, there are also some exciting new dividend ideas, including a fund that is now yielding 12.7%, and its value is rising with rates. And don’t get me wrong, the rates are likely to continue to increase.

We’ll dive deeper into this asset class, and our specific 12.7% ticker, below. First, let’s dive into the current rate situation, which is key to understanding why this fund might be a good addition to your portfolio now.

Floating rate loans love an aggressive Fed

Although we know that the Federal Reserve will raise rates further, as I write this, traders in the Fed futures market are now predicting that rates will rise faster than expected, with higher expectations for a up 75 basis points at the Fed’s September meeting. Meet.

This brings us to a truly underrated asset class: variable rate loans, which increase in value when rates rise.

The reason is simple; these loans have variable interest rates, so when rates rise, their income also increases, and therefore their value on the secondary market (yes, variable rate loans are bought and sold on the open market, like stocks, but it’s a much smaller market, usually full of big Wall Street banks).

It’s not easy to buy individual variable rate loans, but there’s a fund that not only houses a whole set of them, giving you diversification and hedging against the Fed, but also boasts that surprising yield of 11.6% that we talked about above.

It’s called the Saba Capital Income & Opportunities Fund (BRW), and it is a CEF which invests at all times at least 80% of its capital in variable rate loans. In a tough year for all assets, BRW defied gravity and made a small profit for 2022, up about 1% at the time of this writing. But that’s not what’s really exciting about the fund.

Usually, soon after the Fed starts raising interest rates, a fund like BRW goes up in smoke. In fact, that is precisely what it did in 2016. A few months after the Fed began raising interest rates in this hiking cycle, it posted a 15% return in just four months.

The Fed works, BRW soars

Looking at the chart and listening to the Fed strongly hint at more aggressive rate hikes, today feels a lot like mid-2016, a time when BRW’s recovery led to strong earnings. I expect history to repeat (or at least rhyme) this time around.

There is an added bonus: the discount on the net asset value (NAV, or the value of the bonds in BRW’s portfolio). It’s exceptionally cheap and provides exposure to floating rate loans at the sale price. Of course, when other investors realize how well positioned floating rate loans are, that discount is likely to shrink. Until that happens, we can reap BRW’s healthy 12.7% yield.

Over to you: instant access to 18 After Overlooked Income Ideas Returning 8%+

Contrarian games like BRW are our go-to stock at CEF insider, and right now we have a portfolio full of funds that are well suited to this Fed-led market.

The 18 buy-listed funds in our portfolio are yielding 8.7% now, and two-thirds of these cheap games pay dividends monthly, too.

You get instant access to this entire portfolio with a free trial for CEF initiate. And I want to invite you to “kick the tires” on risk-free, no-obligation service today.

Here’s how this invite works: click here and I’ll give you my full CEF investment strategy in a special newsletter for investors. You’ll also get access to a special report outlining my top 4 CEFs to buy now and this invitation to try the full CEF Insider service, including our entire CEF portfolio of 18 purchases.