Tag Archives: closed-end-funds

Tax Free Income From Municipal Bond Closed End Funds

Summary Municipal bond CEFs offer attractive income free from federal taxes. In this article I explore the current muni-bond CEF space. Top funds for key metrics are discussed. Two funds that stand out on the basis of discount and NAV distribution yield are called out as particularly attractive at this time. Life changes and market changes: Both loom on my horizon. The first is unstoppable; the second is uncertain. And taken together they are exerting impacts on my portfolio. Regarding market changes: My view of macro events has led me to re-position my portfolio to a more defensive stance. One consequence is that I’m finding myself with more uninvested cash than I’m comfortable with, especially in my taxable income account where I have been trading out of high-risk, high-yield holdings. Life changes are also having an effect. These speak to my own case as an individual. But all my life I’ve been only a step or two ahead of a demographic tsunami, so I know many others will soon be dealing with similar issues. I’ll soon be putting another zero-birthday up on the scoreboard. This time a seven comes in front of the zero, a milestone that carries major tax consequences. First, my income will jump as I begin to draw social security retirement benefits, which I’ve put off as long as I could. This is a welcome addition and means I can comfortably give up some ground on income yield from my investments. But it also means more taxable income. In addition, in 2016 I will have to begin taking required minimum distributions – RMDs – from my tax-deferred accounts. This adds yet another increment to my taxable income. So, tax efficiency has become an important consideration. High yields are fine, but not if they come with a tax bill of staggering proportions. One outcome of these two pressures is that I continue to increase my allocation to tax-free municipal bonds in my income portfolio. There are other strategic moves underway, but for today’s topic I want to cover the muni bond space. I plan to follow up with a review of other tax-efficient income investments by early next week. As regular readers are aware, my strong preference for tax-free income is to invest in muni-bond closed-end funds. Tax-equivalent income from the CEFs is quite favorable compared to many other fixed-income sources. And it is much better than can be earned from holding individual municipal bonds or other municipal bond funds (EFTs or mutual funds). That attractive income comes, unsurprisingly, with risks. The high yields are partially generated by employing leverage, so it comes with the risk that leverage carries. In choosing funds I try to moderate some of that risk by looking for funds that are experiencing sharp downward moves in their premium/discount status. My assumption is that P/D status often tends to revert to mean values over time, so buying funds at an outsized discount (relative to the fund’s individual history) can help cushion some of the leverage risk. Of course there is often a very good reason for a sharp change in P/D status. In such cases, any confidence in mean reversion must be tempered by the full situation. In addition to leverage risk, muni bonds, like all fixed-income investments, are subject to interest rate risk. But the fact that many of these funds can sell at hefty discounts to their net asset values can help to moderate this risk to some extent. Interest rate fears tend to drive prices down, often well out of sync with interest-rate driven declines for NAVs. This creates deeper discounts. Keeping in mind all the usual caveats about the impossibilities in timing markets, an awareness of changes in P/D status as a reflection of investor psychology can often help moderate interest rate risk by opening opportunities to purchase a fund at a bargain rate. For example, ten months ago (Oct. 2014) I looked at muni bond CEFs here and noted that the space looked to be marked by extreme over-selling, likely a result of interest-rate anxieties. I considered those interest-rate fears overblown and came to a conclusion that bargains were common. I picked out five funds I particularly liked at the time. When I next wrote about muni bond CEFs 4 months later (Feb, 2015) those five funds had returned an average of 7.62% vs. 1.38% for the largest muni bond ETF, the iShares S&P National AMT-Free Muni Bond ETF (NYSEARCA: MUB ), much of it due to discount compression as interest-rate fears faded. But, by Feb 2015 the market had corrected the anomaly of a few months previous and bargains were scarce. It was, as I noted, not a good time to be a buyer in the muni-bond CEF market. I did select three funds at that time despite the paucity of attractive buys, but those three have lost 2.31% while MUB has only dropped -0.95%. This illustrates the importance of timely entry into this market when investor fears outweigh the actual risks. I’m not sure we are quite at that state now, but I expect it’s not far off. In any case, today’s muni bond fund market is, to my mind, much more buyer-friendly than it was in February. The muni-bond CEF space is large. There are at least 99 national muni CEFs and dozens more single-state funds. I’ll restrict my thoughts here to the 99 national funds covered by cefanalyzer . Those of us who live in high-tax states are likely to generate better after-tax returns with a state fund. For my own portfolio, I am invested in California state muni-bond CEFs. Tax-Equivalent Yield One of the things I like to do when discussing muni bonds is to present an overview of tax-equivalent distributions for marginal tax rates to make it easier for readers to determine what the yields mean to them. Most summaries of muni-bonds report tax-equivalent returns based on the highest marginal rates. Few of us qualify for those rates, so it’s important to consider one’s unique situation in deciding if a muni bond investment is appropriate. (click to enlarge) There are good taxable equivalent rate calculators on-line. My favorite is from Eaton-Vance ( found here ). It incorporates state income tax rates and the state-to-state variation in how muni bond income is handled. Distribution Yields Let’s start with a look at current distributions for the universe of national muni-bond CEFs. Distribution rates range from a low of 3.24% to a high of 7.38% (median = 6.18%). The full range for distribution rates looks like this: The top five funds for distribution at Market Price are: Distribution Price Distribution Price Discount Pioneer Municipal High Income Advantage Trust (NYSE: MAV ) 7.50% 5.00% Eaton Vance Municipal Income Trust (NYSE: EVN ) 7.00% 1.42% Dreyfus Municipal Income Inc (NYSEMKT: DMF ) 6.98% -5.01% Pimco Municipal Income Fund (NYSE: PMF ) 6.96% 8.95% Invesco Advantage Municipal Income Trust Ii (NYSEMKT: VKI ) 6.96% -9.38% And, the top five for distribution at Net Asset Value are: Distribution NAV Distribution NAV Discount Pioneer Municipal High Income Advantage Trust MAV 7.88% 5.00% Pimco Municipal Income Fund PMF 7.58% 8.95% Eaton Vance Municipal Income Trust EVN 7.10% 1.42% Pimco Municipal Income Fund Iii (NYSE: PMX ) 6.95% 2.51% Nuveen Municipal High Income Opportunity Fund (NYSEMKT: NMZ ) 6.73% -1.33% I’ve included Discount(/Premium) in the distribution tables because there is a strong message in the relationships. Note that funds with high distributions on NAV tend to sell at a premium. This is a widely seen phenomenon in closed end funds, where investors focus strongly on income and distribution rates. That focus tends to adjust premium/discount status in the direction of an equilibrium distribution on price. Thus funds with low to modest NAV distributions tend to get priced down; they will sell at deep to modest discounts. This does, of course, increase the distribution rate bringing them more in line with funds that have high NAV distributions. At the same time, the high NAV-distribution funds tend to get priced up into premium ranges thereby reducing their distribution rate from the NAV value. MAV, which holds top positions in both distribution metrics illustrates this. Its 7.88% NAV distribution drops to 7.5% after the 5.0% premium takes its bite. VKI, by contrast, lags well behind MAV on NAV distribution at 6.31% (which ranks a respectable 12th of the 99 funds). But its -9.38% discount drives the distribution on price to 6.96% pushing it into the top five for market yield. MAV is an interesting case to illustrate the downside of being too focused on high yield when selecting a fund. MAV had been selling at an outsize premium (approaching 25%) as recently as May of this year. But, as should have been clear to investors, that premium was generated by an unsustainably high distribution rate. In May the distribution was cut from $0.095 to $0.08/share, a drop of -15.7% and the premium fell from a high of 24.48% to near par (0.08%) late in July. As seen in the table above, the premium has picked up a bit in the past three weeks. NAV Yield, Discount/Premium, and The Move Toward Equilibrium Eli Mintz has documented the relationship between NAV yield and Discount/Premium status in an excellent article ( here ). He argues that the relationship between NAV distribution rate and Discount/Premium is a primary factor to be considered in evaluating municipal bond CEFs. Following his lead, I’ve plotted the current values with a linear trendline for these metrics for the 99 funds under consideration. (click to enlarge) Mr. Mintz advocates choosing among funds that fall well under the trend line, so I’ve narrowed the chart to show those funds posting discounts below -5.00%. (click to enlarge) Selection from the lower thresholds of this distribution produces several that look worth exploring on the basis of this metric. But, as we can see in the next table, some are paying out distributions that exceed their actual net investment income (NII Yield). NII calculations are done on a market price basis for the table. On this basis, CMU and MFM look particularly attractive. CMU has a discount below 10%. Its NAV distribution of 6.03% generates 6.73% for its current market rate. And with an excess NII yield of 71bps above distribution, the yield appears secure. MFM sports a discount just shy of -13% and a NAV distribution at 5.44% which generates 6.25% distribution yield. It, too, appears to be earning that distribution with net investment income 48 bps above its distribution yield. This is illustrated in the heat map distribution seen in the next table: Leverage and Duration I’ve included two indicators of risk here, average portfolio maturity and percent leverage. CMU’s leverage (35.56%) is about the middle of the pack for the muni bond CEF space, ranking 55 of the 99 funds. MFM carries less leverage. Its 30.04% leverage ranks 25th in the space. Maturity can provide some indication of interest rate risk. Duration adjusted for leverage would be preferred but this is not a metric that is available through the screeners I use. The average maturities of the CMU and MFM portfolios both stand at 18.6 years, ranking 66 of 99. For this set of funds, the Nuveen offerings (NMA, NMO, NQS, NXZ and NZF) might appear to be better positioned for interest rate risk on the basis of portfolio maturity. But, when portfolio duration is calculated this is not supported. Fund Duration (Unadjusted) Duration (Leverage Adjusted) CMU 6.56 10.20 MFM 7.00 10.00 NMA 7.10 10.85 NMO 7.72 12.10 NQS 7.76 12.32 NXZ 7.47 11.31 Summarizing Other Metrics I’ll close with a summary of the top five funds for some other metrics for readers who may be interested in exploring funds leading for these categories. Along with the ranking metric, I include discount, distribution rates, NII yield and NII excess. The top five funds for discount: Discount Dist Dist (Price) NII yield Excess Nuveen Quality Municipal Fund Inc (NYSE: NQI ) -13.62% 4.61% 5.34% 5.55% 0.21% Nuveen Dividend Advantage Municipal Fund 2 NXZ -13.07% 5.25% 6.04% 5.62% -0.42% Nuveen Municipal Market Opportunity Fund Inc NMO -13.02% 5.08% 5.84% 5.92% 0.08% MFS Municipal Income Trust MFM -12.91% 5.44% 6.25% 6.73% 0.48% Nuveen Dividend Advantage Municipal Income Fund (NYSEMKT: NVG ) -12.82% 4.77% 5.47% 5.66% 0.19% Top five for Total Return (Price) for one year: TR Price 1Y Discount Dist Dist (Price) NII yield Excess Western Asset Managed Municipals Fund Inc. MMU 11.92% -1.03% 5.52% 5.57% 5.55% -0.02% Western Asset Municipal Defined Opportunity Trust Inc. (NYSE: MTT ) 11.85% 6.49% 4.47% 4.19% 4.40% 0.21% Mfs Investment Grade Municipal Trust (NYSE: CXH ) 10.77% -7.45% 4.90% 5.29% 5.63% 0.33% Nuveen Municipal High Income Opportunity Fund NMZ 10.25% -1.33% 6.73% 6.82% 6.93% 0.11% Blackrock Muniassets Fund, Inc. (NYSE: MUA ) 10.21% -1.65% 5.38% 5.47% 5.35% -0.12% Top five ranked for Total Return for one year: TR NAV 1Y Discount Dist Dist (Price) NII yield Excess Delaware Investments National Municipal Income Fund (NYSEMKT: VFL ) 11.15% -11.32% 5.35% 6.03% 5.50% -0.53% Eaton Vance Municipal Income Trust EVN 9.10% 1.42% 7.10% 7.00% 6.89% -0.11% Western Asset Municipal Partners Fund Inc. (NYSE: MNP ) 8.13% -9.59% 5.24% 5.80% 5.53% -0.27% Western Asset Managed Municipals Fund Inc. (NYSE: MMU ) 7.77% -1.03% 5.52% 5.57% 5.55% -0.02% Pimco Municipal Income Fund Iii PMX 7.07% 2.51% 6.95% 6.78% 6.98% 0.20% Top five for one-year Z-Scores, a measure of the extent to which the current discount/premium varies from the average discount/premium for the past year. Readers unfamiliar with Z-Scores can read about the metric here . Z-Score 1Y Discount Dist Dist (Price) NII yield Excess MFS Municipal Income Trust MFM -2.00 -12.91% 5.44% 6.25% 6.73% 0.48% Nuveen Municipal Income Fund Inc (NYSE: NMI ) -1.80 -6.06% 4.38% 4.66% 4.77% 0.11% Nuveen Municipal Market Opportunity Fund Inc NMO -1.63 -13.02% 5.08% 5.84% 5.92% 0.08% Western Asset Intermediate Muni Fund Inc. (NYSEMKT: SBI ) -1.63 -7.12% 4.61% 4.96% 4.46% -0.50% Pioneer Municipal High Income Advantage Trust MAV -1.56 5.00% 7.88% 7.50% 7.43% -0.08% I’ll add the following chart which shows the distribution of 1-yr Z-Scores for all funds considered here. It provides a useful touchstone to compare with similar charts from previous articles to compare trends in the municipal bond CEF universe. I’ll close with the seven funds having the shortest average portfolio maturities. But keep in mind, as noted above, this is not a stand-in for leverage-adjusted duration, the preferred metric for evaluating interest-rate risk. Leverage-adjusted duration can usually be found on the sponsor’s web pages for a fund. I do not know of a screening tool that uses this metric. If any reader is aware of one, I would certainly appreciate your sharing that information. Maturity Discount Dist Dist (Price) NII yield Excess Blackrock Municipal 2018 Term Trust (NYSE: BPK ) 5.4 -0.65% 3.64% 3.66% 3.99% 0.33% Nuveen Select Maturities Municipal Fund (NYSE: NIM ) 5.7 -2.78% 3.16% 3.25% 3.35% 0.10% Deutsche Strategic Municipal Income Trust (NYSE: KSM ) 5.9 -0.23% 6.55% 6.57% 6.41% -0.16% Deutsche Municipal Income Trust (NYSE: KTF ) 6.2 -4.67% 6.28% 6.59% 6.44% -0.14% Alliance Bernstein National Municipal Income Fund (NYSE: AFB ) 6.3 -7.81% 5.48% 5.94% 6.20% 0.25% Eaton Vance Municipal Bond Fund Ii (NYSEMKT: EIV ) 6.3 -7.78% 5.41% 5.87% 5.86% 0.00% Putnam Municipal Opportunities Trust (NYSE: PMO ) 6.3 -10.08% 5.41% 6.02% 6.35% 0.33% Additional disclosure: I do not hold any of the funds discussed above. My municipal bond holdings are all in California state bond funds at this time. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source Capital: Not The Time To Buy In An Up And Down Year

SOR is struggling so far in 2015. But it’s been an up and down year when comparing the first and second quarters. And the narrower than average discount suggests now isn’t the time to jump aboard. Source Capital (NYSE: SOR ) is an old hand in the closed-end fund, or CEF, space, having been in business since 1968 . It’s long used a focused portfolio to opportunistically invest in small- and mid-cap companies with high returns on equity. That’s great, but a narrower discount than normal of late suggests new investors would be better off waiting here. Here’s what’s been going on. What a difference a quarter makes According to SOR , its net asset value return was 3.1% in the first quarter. That was below its Russell 2500 benchmark, which was up over 5%, but well ahead of the S&P 500, which was up less than 1% in the first quarter. So it’s no surprise that investors would be generally pleased with the closed-end fund, or CEF. Indeed, during the first quarter, the market price of the shares went up along with the NAV. However, something changed in the second quarter. SOR’s NAV fell 2%, worse than the 0.3% or so loss for the Russell 2500 and the around 0.3% gain in the S&P. But while the NAV has been falling, investors haven’t reacted by selling the shares. In fact, they’ve pretty much been holding the line. With that backdrop, SOR’s discount, which has recently been averaging around 9% but has a three-year average of about 10%, has narrowed. The discount is recently hovering around 7% or so-roughly in line with its 10-year average according to the Closed-End Fund Association . Long-term investors should probably tread carefully here since the shares are clearly not on sale. Those looking to play discounts and premiums, meanwhile, should also be on the sidelines. What’s been going wrong? Obviously losing positions outweighed winners in the second quarter . More specifically, retailers Signet Jewelers (NYSE: SIG ) and CarMax (NYSE: KMX ) have been sagging and that’s a big problem. These two are the second and third largest holdings in the fund, making up about 15% of assets. CarMax is down nearly 6% this year and Signet over 8%. With a concentrated portfolio, big bets are the norm. And that’s something that investors in SOR need to fully understand. For example O’Reilly Automotive (NASDAQ: ORLY ), a winner for the fund so far this year, makes up nearly 15% of assets. Taking that a step further, the top three holdings make up about 30% of the fund. For reference, the top 10 holdings account for around 60% of the fund. So you can see the impact O’Reilly, Signet, and CarMax will have on performance. With two of the three struggling, it’s no surprise that SOR’s NAV is only slightly ahead of where it started the year. Adding to the negatives, at the start of the second quarter two other struggling companies were in the top 10, Knight Transportation (NYSE: KNX ) and Heartland Express (NASDAQ: HTLD ). Only Knight remained a top 10 holding at the end of the second quarter at roughly 4% of assets. Knight is down around 18% so far this year and Heartland, the tenth largest holding at the end of the first quarter, is down about 20%-no wonder it fell out of the top 10 by the end of the second quarter. Once again, however, you can see that the focused approach comes with risks. And with the fund’s discount narrower than its recent history, now isn’t the time to jump aboard. That said, over time, SOR has rewarded investors for taking on added risks, so don’t write the fund off entirely. For example, over the trailing 15-year period through June, the fund’s annualized total return, which includes reinvested distributions, is nearly 11%. That’s ahead of its benchmark Russell 2500 by about two percentage points a year. And it’s over twice the annualized return of the S&P over the same span. So being selective and betting heavily on management’s best ideas has paid off over time. Just not in the second quarter… Keep it on your watch list If you are looking for a small and mid cap closed-end fund, SOR is one that should be on your watch list. Its expense ratio is around 0.8%, which is very reasonable for a CEF. Yes, that’s notably higher than straight index ETFs, but ETFs in the same space don’t usually have the same distribution history. For example, SOR’s yield is currently around 4.5%. The WisdomTree U.S. SmallCap Dividend Growth ETF (NASDAQ: DGRS ), meanwhile , has an expense ratio of around 0.4%, but yields about half as much even though it’s focused on dividend paying stocks. That said, capital gains account for almost the entire disbursement at SOR, so distributions will fluctuate over time and probably fall in difficult markets. Thus, this is more of a total return play than an income play. That doesn’t mean distribution focused investors should avoid SOR, just that this is an important fact to keep in mind when buying it. In the end, it was a tough second quarter and middling first six months for SOR. That doesn’t make it a bad fund, but it does highlight the risks inherent in the fund’s focused approach. Long-term investors should keep the fund in mind, but don’t bother jumping aboard now because the discount is slimmer than it has been in recent years. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Oxford Lane Capital Has ‘Got Some Splainin’ To Do’

OXLC’s decision to stretch its normal 12 month dividend over 13 months this time around has shareholders scratching their heads. Rule No. 1 of corporate communications: Always get out in front with the explanation instead of leaving the public to guess. Breaking that rule merely invites people to make up their own explanations — usually far worse than the reality. The bigger question begging for an answer: Does the drop in NAV reflect taxable income better than GAAP accrued income because of GOOD things, like better credit experience… … Or does it reflect BAD stuff, like failing to sell or dissolve CLO investments before they start returning principal? As I Love Lucy ‘s Ricky Ricardo often said to his wife Lucy, “Honey, you got some splainin’ to do,” so might Oxford Lane Capital (NASDAQ: OXLC ) shareholders expect some explanation from the fund’s management after it quietly announced its quarterly dividend “stretch” earlier this month. With a history of paying dividends at the end of March, June, September and December, the company announced August 10th that its next dividend would be paid October 30, four months after its last dividend on June 30 (to holders of record September 30.) “Not a big deal,” some investors might say, essentially stretching a typical year’s dividend to cover 13 months instead of 12. But a dividend cut is a dividend cut, however it is served up and described, and certainly worthy of some explanation. That’s especially true inasmuch as “Good Corporate Communications Rule No. 1” is Always get out front and explain what you’re doing instead of leaving shareholders to guess . Especially because, in most cases, they will guess something even worse than the real reason. Let’s hope that is the case here, and that there is some reasonable explanation. Beyond that, there are other things OXLC’s management needs to do a better job explaining. (The upcoming stockholders’ meeting on September 9 would be one good venue, although I hope they put something out before then.) They essentially revolve around educating their shareholders and the market to what their “income” really consists of, and what the difference between GAAP income and taxable/distributable income actually is and how it affects the fund’s NAV over time. This latter point is a really big deal and will determine whether or not OXLC and other funds, BDCs, etc. that hold CLO equity are to be regarded by the market as “wasting assets” like royalty trusts, whose payouts slowly but permanently eat up their capital to the point where they finally make the last distribution and there is then nothing left. I am not suggesting CLOs are wasting assets , but there is enough confusion about the subject that I can understand other people coming to that conclusion. Here is how I understand the situation (and readers should take this, and everything I write, with a grain of salt because I am far from an expert): I have recently come to understand that many CLO equity owners are taxed on the entire cash flow they receive from their CLOs (including principal repayments) as though it is all income. Meanwhile, on a GAAP basis, they only include some of that cash flow as income, excluding from income principal plus other accrued and/or projected expenses, like credit losses, losses due to interest rate adjustments, etc. This means that taxable income (which is used to determine distributable income for paying dividends to shareholders) will often be higher than the GAAP income, for two primary reasons (one reason good, the other bad). The good reason : If the fund has been prudently accruing for credit losses at say, 1.5% per annum, and in fact credit experience is so good that the actual losses are only 0.5% per annum, then 1% more cash flow will be received than was actually expected. GAAP income will assume 1.5% was lost in credit losses, but in fact that extra 1% that wasn’t lost will show up as additional cash flow available to pay dividends. If the CLOs’ equity (which is what OXLC owns) is typically leveraged 9 or 10 to 1 then that extra 1% on the CLOs’ portfolios will show up as 9 or 10% in extra margin for their equity. So there will be a considerable difference between reported GAAP income and the actual taxable/distributable income from this factor alone. In the short term, the fund’s accountants will assume that the 1.5% credit loss will hit eventually and will maintain the accrual at 1.5%, even though the loss suffered was only 0.5%. If the difference is paid out as a distribution, from a GAAP perspective that difference will represent an “unfunded” portion of the dividend, and will therefore be deducted from the NAV as a return of capital. Later on, if that CLO terminates or is sold without having ever suffered the credit loss that was accrued for, that unnecessary accrual should return as some sort of an adjustment or capital gain, with a corresponding adjustment upwards of the NAV. That, I believe would be the impact on OXLC’s NAV of accruing expenses (for credit or anything else) that are eventually not taken and therefore reversed. The bad reason: If the fund actually receives principal repayments that it is taxed on and treats as distributable income, that is money out the door never to return (i.e. a true return of capital), and would be just like a real “bricks-and-mortar” bank (a CLO is a virtual bank) using principal repayments from its loan portfolio to fund its dividends. But funds like OXLC aren’t stupid, and I don’t think they want to receive principal back, get taxed on it and have to use it for distributions. After all, it runs down their asset base and would, ultimately, put them out of business. So I believe they make an effort to dispose of their CLO assets – sell them or dissolve the CLO itself if they have a controlling position or can join with other investors for the purpose – before the CLO reaches its wind-down period where the CLO manager can no longer re-invest principal payments in new loans and has to return it as a taxable distribution to equity owners. If my understanding of this is at all correct, then OXLC’s management, if it is doing a good job, should be managing the portfolio in such a way as to ensure that there are very few principal repayments making their way into the distribution stream. That would mean that most of the difference between the GAAP income and the taxable/distribution income is represented by actual differences in the flows of a positive nature, like credit expenses that are less than what was projected for, and which will be reversed back into NAV once those CLOs end, one way or another, with their better-than-projected-for credit records intact. The above is my theory of what might be/could be and, I hope, actually is going on. If that is true, then the NAV drops we are seeing are not necessarily one-way only drops, but represent the GAAP-taxable income factors described above as well as the overall market drop in high yield assets generally. If that’s what it is, then it does not represent an economic deterioration in the ability to earn cash flow and pay dividends indefinitely. If I am wrong, and it were to actually mean that a major portion of the OXLC distribution is made up of principal repayment, then we would have to re-think the asset class and our expectations about it. As I said, I have no reason to think my upbeat interpretation is not the correct one. But it would sure be helpful if the fund’s management were to weigh in with some explanations that would put the matter to rest. It would help us all as shareholders to understand better what we are invested in. It would be in the fund’s interest as well to have investors understand management’s strategy and what the factors are that influence whether they are successful or not in executing it. Disclosure: I am/we are long OXLC. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.