Debt-Focused Equity Trades Slip Amid Market Pullback (CMF, INY, CXA, PST, TBT, LEO, PIM, PCN, JQC, GDV, HPS)
Equity investors have been hit hard over the past week, and bond investors haven’t fared any better. Despite the Fed’s quantitative easing efforts, bond prices sank over the past five days driving yields higher across the board.
As a whole, the Bond ETFs Index slipped -2% for the week ended Tuesday. iShares S&P California Municipal Bond Fund (CMF), SPDR Barclays Capital New York Municipal Bond ETF (INY) and SPDR Barclays Capital California Municipal Bond ETF (CXA) were notable losers for the period as the funds, which invest in municipal debt, sank -5% over the past week. Almost every component in the Index traded in negative territory for the period. Bond-focused “reverse” ETFs, like the ProShares UltraShort 7-10 Year Treasury (PST) and ProShares UltraShort 20+ Year Treasury (TBT) are among winners during the pullback.
Elsewhere, the Debt-Focused Closed-End Funds Index plunged more than -6% over the past five trading days. As of yesterday’s close, not a single component ended higher for the week with Dreyfus Strategic Municipals (LEO), Putnam Master Intermediateome Trust (PIM) and Pimco Corporate Income Fund (PCN) among the hardest hit. Meanwhile, Pro favorites in the space like Nuveen Preferred Convertible Income Fund 2 (JQC) and Gabelli Dividend & Income Trust (GDV) weren’t immune to the sell-off as shares of the closed-end funds dipped -4% for the period.
Investors should note that many debt closed-end funds don’t invest solely in traditional debt and bonds. Some have positions in preferred shares or mortgage backed securities as well, so it is important to understand exactly what type of assets the funds are invested in. For instance, John Hancock Preferred Income Fund III (HPS), currently yielding 8%, invests primarily in preferred equity securities. Still, investors in these vehicles get access to fund managers who actively manage holdings, unlike most ETFs. In addition, closed-end fund managers have the ability to utilize leverage in their portfolios, which can amplify yield or gains and losses.
It will be interesting to see how prices of these funds fare, and where yields in the space go from here. As of this writing, both the Bond ETFs Index and the Debt Focused Closed End Funds Index are among the the top-25 of more than 270 tickerspy Indexes ranked by yield.
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