The Fed seems to have taken the wind out of the recent A.I.-related rally with its recent comments about more rates hikes on the horizon, and its commitment to getting inflation down to its 2% target.
With that as the backdrop, and the current bull market under pressure, it's more important than ever to be looking for income investments to smooth out some of the volatility, and provide some upside when stocks begin trading higher again.
Just like in last week's watchlist, I want to focus our attention on inflation-beating 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.
I tend to look for two things in CEFs. Yield is important, of course, but also the relationship between its current trading price and its net asset value (NAV) - that is, the value of all the assets that the fund has under management.
When a CEF is trading below its NAV, it's said to be trading at a discount, and this creates a great entry point for investors who can benefit from both the upside potential and the income.
And I've got a pick this week that checks off all the boxes.
I'm watching Thornburg Income Builder Opportunity Trust (TBLD), a closed-end fund that seeks current income and total return by investing in global securities alongside covered call options. In addition to holding equities producing attractive distributions, writing covered calls against those equities, it also writes uncovered call and put options.
The TBLD portfolio composition consists of 65% global equities, 31% global debt, and 4% cash.
Regarding the portfolio, the price to trailing 12-months earnings is just 10.0x, compared to its benchmark, which is 17.7x. That's impressive, especially considering how high valuations have gotten after the recent A.I.-fueled rally.
At the current price, the fund delivers an 8.29% yield, and it's trading an -14.13% discount to its net asset value (NAV).
I'm watching TBLD 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.
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The post This Income Play Is a Perfect Hedge Against a Choppy Market 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.