This is an extract from an earlier article at Systematic Income Premium
This year has seen tremendous volatility in the broader income space, both down and up. Large drops in portfolio holdings can make it difficult for investors to take advantage of developing opportunities by limiting the amount of capital they can deploy. These drops can also cause investors to lose conviction in their holdings, causing some to sell at the lows only to buy back higher.
In this post we take a look at some income securities that have remained relatively resilient and the reasons why. If the recent bounce in the income space is another dead cat bounce that we saw at the end of March, these securities may offer investors a more stable capital base with which to pursue new investment opportunities.
These securities have three things in common. First, as just mentioned, they are in the green for the year. Two, they have all been highlighted in our previous articles multiple times as ones that were likely to remain resilient going forward. And three, they have been core holdings of our Income Portfolios from at least 2021.
These securities include:
- CLO Equity CEF Eagle Point Credit Co bonds such as the 6.6875% 2028 bonds (ECCX) trading at a 6.79% yield-to-maturity. We currently hold the more liquid 5.375% 2029 bond (ECCV) in our Income Portfolios which is also trading at a slightly higher yield of 6.80%. ECCX is up 1.3% year-to-date in total return terms.
- BDC Oxford Square Capital Corp 6.5% 2024 bonds (OXSQL), trading at a 6.57% yield-to-maturity. OXSQL is up 1.7% year-to-date.
- Mortgage REIT Arlington Asset Investment Corp 6.75% 2025 bonds (AIC), trading at a 6.78% yield-to-maturity. AIC is up 2.8% year-to-date.
Over the last few weeks and months we have been using some of the lower-yielding securities discussed above to rotate into higher-yielding securities that have been beaten down much more. In our view, longer-duration fixed-coupon securities, such as high-yield corporate bonds and others, have become significantly more attractive. This was especially the case in the CEF space where discounts have opened up to double-digit figures.
At the same time we continue to maintain some allocation to these more resilient assets while clipping decent yields of 6-7%. Investors who want to maintain some market exposure without swinging for the fences or moving into cash may find them useful in a broader income portfolio as they may allow them to take advantage of more attractive opportunities down the road.
Thanks for reading.
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