BANX And HYB: Delivering Income To Investors

Core Viewpoint - Closed-end funds (CEFs) can provide attractive income opportunities, particularly through leverage and distributions that may exceed net investment income, with a focus on two specific funds: ArrowMark Financial Corp (BANX) and New America High Income Fund (HYB) [2][12] ArrowMark Financial Corp (BANX) - BANX has a 1-Year Z-score of 0.59 and is trading at a discount of -15.54% based on the estimated NAV of $21.76 as of November 30, 2023 [3][7] - The fund has a distribution yield of 9.70%, an expense ratio of 4.16%, and utilizes leverage of 24.40% with managed assets totaling $200.4 million [3] - The investment objective is to provide current income primarily through regulatory capital securities of financial institutions, with nearly 87% of the portfolio in these securities as of September 30, 2023 [4] - The fund reported a net income of $0.72 per share for Q3 2023, providing a distribution coverage of 160% against a regular distribution of $0.45 [5] - The net investment income (NII) for the latest semi-annual report was $1.95, significantly exceeding the previous year's NII of $1.84 [5] - The fund's NAV has remained stable, and despite a narrowing discount, it is still considered attractive historically [7] New America High Income Fund (HYB) - HYB has a 1-Year Z-score of 0.94 and is trading at a discount of -13.41% based on the NAV of $8.16 [8][10] - The fund has a distribution yield of 6.73%, an expense ratio of 1.40%, and utilizes leverage of 33.27% with managed assets of $268.66 million [8] - The investment objective is to provide high current income while preserving capital, primarily through high-yield fixed-income securities rated "BB" or lower [8] - The fund has a diversified portfolio with 452 holdings, where the largest holding constitutes only 1.31% of the portfolio [9] - The fund's NII for the last six months was $0.25, covering total distributions of $0.20, indicating that the latest distribution is fully covered based on earnings [10][11] - With rising borrowing costs impacting NII, the fund is expected to benefit from future rate cuts, easing pressure on its portfolio [11] Conclusion - Both BANX and HYB provide regular income supported by their underlying portfolios, with BANX benefiting from a higher rate environment while HYB faced challenges [12] - Future rate cuts are anticipated to positively impact HYB, while BANX has a significant cushion to maintain its distribution despite potential rate reductions [12] - Both funds are trading at attractive discounts, making them suitable candidates for income-focused investors [12]