Two of the closed-end funds featured in the current issue’s Mutual Fund Quarterly (“Where to Go for Double-Digit Yields”) experienced the Barron’s Bounce, reflecting both the typical reaction to a mention here as well as volatility of these thinly traded securities.
The XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT) was up 1.26% late in Monday’s session, which isn’t that unusual on a strong day, but the CEF traded more than 12 times its typical daily volume.
The Eagle Point Credit (ECC) is off 0.59% on three times’ normal daily volume, but that essentially reversed the spike seen Friday when the article was posted first online by Barron’s. Oxford Lane Capital (OXLC) is up 0.57% on heavier-than-usual volume. These two CEFs had the highest yields of those mentioned in the article, owing to their emphasis on the riskiest types of collateralized loan obligations, but also trade at premiums to their net asset values.
The XAI Octagon Fund offers a lower yield, just under 9% based on Friday’s close, but also trades at a discount to its NAV. Its single-digit yield, versus the yields in the low-to-mid teens for the other two, reflects its more diversified portfolio with less emphasis on the riskiest classes of CLOs.
In any case, the sharp pickup in trading volume after the mentions in Barron’s points up caveats regarding trading CEFs. To reiterate, the funds are thinly traded, small-capitalization stocks that have limited liquidity when there is a stampede either in or out of them. Limit orders help prevent overpaying when buying, especially when indiscriminate buying produces pops.
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