Interval Funds

Jul 28. 08:59

5 Interval Funds Yielding Over 6% for Retail Investors: Q2 2021

Yield Sign, photo by James Coleman on Unsplash.

Yield.

Whether you're a retirement investor trying to improve income while the Fed figures out its stance on inflation, or you're a FIRE investor looking to keep earning dividends while protecting your downside in case of a bear market, you've probably been reading about distribution yield quite a bit the past few weeks.

In the case of interval funds, which are bought and sold at net asset value (NAV) and do not trade at a discount, we calculate Current Yield as follows:


5 Interval Funds Yielding Over 6.6% for Retail Investors: July 2021



Luckily, for everyday investors interested in either current income or the compounding power of automatic dividend reinvestments, interval funds are increasingly providing access with exposure to assets and strategies that generate strong yield.

Here are the top 5 from Q2 2021.


LORD ABBETT CREDIT OPPORTUNITIES FUND (LCRUX)

Share Class: Class U

Current Yield: 6.24%

Minimum Initial Investment: $2500

The Lord Abbett Credit Opportunities Fund's objective is to deliver high current income and total return, by investing across a broad range of credit sectors including corporate, sovereign, municipal, and structured credit. Of the two share classes available to retail investors, LCRUX posted the strongest Q2 yield.


FLAT ROCK CORE INCOME FUND (CORFX)

Share Class: Common Shares

Current Yield: 6.63%

Minimum Initial Investment: $1000

The Flat Rock Core Income Fund's objective is to preserve capital and generate current income, primarily by investing in floating rate loans to privately owned middle market businesses in the United States.


PIMCO FLEXIBLE CREDIT INCOME FUND (PFALX)

Share Class: Class A-2

Current Yield: 6.91%

Minimum Initial Investment: $2500

The PIMCO Flexible Credit Income Fund's objective is to provide risk-adjusted returns and current income, by investing across a range of global credit sectors that include corporate, mortgages, municipal credit and consumer credit in emerging markets. Of the four share classes available to retail investors, PFALX posted the strongest Q2 yield.


NEXPOINT REAL ESTATE STRATEGIES FUND (NRSAX)

Share Class: Class A

Current Yield: 7.78%

Minimum Initial Investment: $2500

The NexPoint Real Estate Strategies Fund's objective is to provide long-term total return with an emphasis on current income, by investing in a broad range of debt, equity and preferred equity across multiple real estate sectors. Of the two share classes available to retail investors, NRSAX posted the strongest Q2 yield.


FLAT ROCK OPPORTUNITY FUND (FROPX)

Share Class: Common Shares

Current Yield: 10.11%

Minimum Initial Investment: $20,000

The Flat Rock Opportunity Fund's objective is to deliver yield from less efficient market sectors, primarily through exposure to diversified pools of senior secured loans via investments in collateralized loan obligations.


Are these minimums really that accessible to retail investors?

A retail investor is a non-professional investor making investments on their own behalf, as opposed to an accredited investor or a financial institution. Someone who made $185k each of the last two years and has a net worth of $900k is just as much a retail investor as a high school senior with no assets. Neither can invest in securities with accreditation requirements.

For newer investors accustomed to equities and ETFs, putting between $1k and $20k on a single security may stir fears of concentration risk or simply be unfeasible. However, these funds provide access to private strategies that would traditionally require $1m to $25m upfront or more, with multiple years before any liquidity is provided. By contrast, these minimums are miniscule, interval funds offer regular liquidity opportunities, and you can actually invest in them.

It's also important to remember that most interval funds are designed to benefit investors who hold over the long term. If you've contributed to retirement funds for 25 years (or invested 65% of your take-home pay for 10), even the $20k FROPX minimum would represent a relatively small allocation of your total portfolio. If yield is the goal, then it'll be worth it to some individuals.

While we'd like to see minimums continue to fall so more investors can buy into these wealth-building products, we still view many interval funds as sadly overlooked alternatives to both bond markets and equities when it comes to generating yield.

As always, investors should carefully read prospectuses and consider the risks against their own unique circumstances before investing in an interval fund - or any security, for that matter.

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