After 17 months of rate hikes, inflation is still higher than the Fed would like it, and the Central Bank is expected to raise rates another two times this year.
Inflation just won't come down, at least nowhere near the Federal Reserve's 2% target rate - even after the Fed Funds Effective Rate has jumped from 0.08% in February 2022 to 5.07% right now.
In this week's watchlist, I want to refocus our attention on inflation-beating investments, specifically Closed End Funds (CEF). In case you're not familiar with CEFs, they are a type of mutual fund that issues a fixed number of shares through a single initial public offering (IPO) to raise capital for its initial investments. Its shares can then be bought and sold on a stock exchange, but no new shares will be created, and no new money will flow into the fund.
This week, I'm watching Nuveen Floating Rate Income Fund (JFR), which is a closed-end fund (CEF) that seeks to achieve a high level of current income by investing in a portfolio of adjustable-rate senior loans and other debt instruments.
The fund invests at least 80% of its managed assets in adjustable-rate loans; at least 65% of those must be senior loans secured by specific collateral.
The bottom line regarding JFR, when interest rates increase, the interest rates on the debt that JFR has issued also increases - and that creates more capital that can be passed along to investors in the form of distribution payments.
Speaking of which, JFR makes distribution payments every month. The current distribution of $0.0741 per month amounts to $0.8892 annually, which (based on the current price of $7.82) amounts to a whopping 11.37% yield.
That's some serious cash!
In addition to the 11.37% yield, JFR is currently trading an 13.69% discount to its net asset value (NAV).
Regarding the JFR portfolio, the fund holds 472 holdings. 81.8% of which are senior loans. That's important because it puts JFR first in line to be paid in the event there are problems with any of its loans.
Because JFR holds a portfolio of bonds, it tends to trade lower as interest rates rise. That's fine. As interest rates rise, the interest that JFR collects on its loans will also increase and that will translate into higher payouts - and that translates into an even higher yield than the current 11.37% distribution rate.
I'm watching JFR for the income, but I'm also watching for a potential price breakout which could bring the current shares price in line with its NAV.
With inflation still on investor's minds, I'll be back next week with another inflation-beating investment idea.
The post Score an Inflation-Crushing 11%+ Yield on This Stock appeared first on Total Wealth.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.