We have recently rotated out of the OFS Credit Company (OCCI) fund in one of our portfolios on the service.
We legged into OCCI around 6 months ago at around a 20% discount and when credit valuations were still very attractive.
Right now, OCCI has moved to trade to a nearly double-digit premium, depending on whether you use the official or our daily estimated NAV. And underlying credit valuations are getting quite frothy so it makes a lot less sense to hold on to the position.
What many investors in CLO Equity CEFs like OXLC, ECC or OCCI miss is that they are not through-the-cycle investments. This is because over the longer-term their returns have been very uninspiring, particularly relative to their yields and relative to the volatility and drawdowns these funds exhibit.
For example, on an NAV basis OCCI has delivered a zero return since inception in Oct-2018. And this had nothing to do with COVID as 2020 was actually a good year for the CLO Equity funds.
Although many income investors don’t like adopting a tactical orientation to their investments, unfortunately, this is the only way to justify any allocation to the space.
Thanks for reading.
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