Blackrock CEF discount

[wabmester]

Can somebody explain the 12.81% discount on BDT to me? I realize that some of the dividend comes from selling off assets of the fund, but it still seems like a good deal to me. Am I missing some obvious risk or expense?

BDT info

[brewer12345]

Well, it isn't leveraged and the expense ratio is reasonable as these things go. Assuming you want the exposure that the fund contains, it doesn't look terrible. I assume that they have to sell off some holdings to pay the div because the fund yield is above that of the underlkying assets, right?

I recently put some HPF in my parents' account under pretty much the same theory. 13% discount to NAV and assets that actually cover the dividends and get dividend tax treatment was too attractive to pass up.

[wabmester]

Quote:

Originally Posted by brewer12345 I assume that they have to sell off some holdings to pay the div because the fund yield is above that of the underlying assets, right?

Yeah, it's a "managed" dividend of 6%, so I assume they'll sell assets with each distribution.* *I'm too lazy to do Mergent-style research myself, so this looks like a pretty cheap and easy way to buy small/mid-cap dividend achievers, not to mention predictable income.

Edit: Hmm, HPF looks good to me to.* *I'm also too lazy to research high-quality preferreds.

[mikew]

I am probably wrong with this but...

I think HPF's discount is due to worries about interest rates because it is a leveraged fund.

BDT- The dividends are set at 6% of the share price not the NAV price. Since the share price hasn't risen, the company has been paying out the same $ 0.225 since it started last year. However, the NAV has risen 12%.

The question seems to be will the fund become popular, raising the price. If it doesn't, you could have dividends without the capital gains of the underlaying companies. Also, you may not get increasing dividends even though the underlaying companies increase their dividends to match their share price increases.

Mike

[brewer12345]

Actually, I'd be more inclined to believe that the discount on HPF is due to worries about utility creditworthiness, since utility preferreds are the biggest slug of assets by a long shot. IIRC, HPF swapped out a lot of its incremental rate exposure, so while it is obviously rate sensitive, it doesn't have a crazy duration.

[wabmester]

Looks like HPF leverage is around 30%, and credit quality is mostly BBB. How do I find duration and more info about their preferred holdings, like if they are perpetual?

I did buy a slug of BDT today, but it's hard to find good data. Yahoo says P/E is 6.51, which can't be right.

[brewer12345]

Quote:

Originally Posted by wab Looks like HPF leverage is around 30%, and credit quality is mostly BBB.* *How do I find duration and more info about their preferred holdings, like if they are perpetual? I did buy a slug of BDT today, but it's hard to find good data.* *Yahoo says P/E is 6.51, which can't be right.

Yahoo's stats on CEF's are useless.

The best place to find out stuff about CEFs is on the manager's website. IIRC, their preferreds are a mixture of perpetual and long-dated maturities. Most of the market in new issuance these days is perpetual with a 5 years from issue call date.

[wabmester]

Quote:

Originally Posted by brewer12345 Yahoo's stats on CEF's are useless.

Yahoo was the only site that even tried to give me P/E data on BDT. Neither Blackrock nor other CEF/ETF sites seemed to even try to make up this piece of data.

And I did get the HPF stats directly from JH, but couldn't find duration/perpetual info.

[brewer12345]

Don't know what to tell you. Maybe call them? FWIW, last I looked at the thing, my guesstimae was that duration was similar to a 10 or 12 year treasury, but its hard to tell because you cannot accurately predict call/redemption when it is the option of the issuer.

[wabmester]

Just an FYI -- I called Blackrock and asked a couple of simple questions:

Q) What's the P/E of BDT?
A) We don't tell you until there's at least 3 years of fund history. The only way for you to figure it out is to look up the individual holdings and calculate it yourself.

Q) If you payout more dividends than fund income, is the deficit reflected in the NAV?
A) Yes.