Marty Fridson is a well-known expert in income investing, often covering complex securities and strategies, such as these two preferred, closed-end income funds featured in the latest issue of his Forbes/Fridson Income Securities Investor.
First Trust Intermediate Duration Preferred & Income Fund (FPF) is a preferred income fund with an investment objective of high current income and a secondary objective of capital appreciation.
Under normalized market conditions, FPF invests at least 80% of its managed assets in a portfolio of preferred stocks and other income-producing securities issued by U.S. and non-U.S. companies.
Securities include traditional preferred issues, convertible preferreds, and debt instruments. FPF invests at least 25% of its managed assets in the financial sector, insurance space, and REITs. The fund also invests in energy, utilities, industrials, healthcare, and telecom.
As of 08/31/21, the portfolio’s industry breakdown was dominated by Banks (41.98%), followed by Insurance (16.00%), Capital Markets (8.78%), and Oil, Gas & Consumable Fuels (7.31%). The top five holdings were Barclays Bank (2.50%), Aercap Holdings (2.00%, Emera Inc. (1.97%), Land O’Lakes (1.65%), and Credit Agricole (1.64%).
Performance has been strong historically, with the fund posting a market price total return of +13.01% in the YTD period ended 08/31/21. This closed-end fund remains suitable for low- to medium-risk taxable portfolios. Distributions are taxed on a variable basis, but largely at advantageous rates. Buy at $28.50 or lower for a 5.35% annualized yield.
John Hancock Financial Opportunities Fund (BTO) — formerly John Hancock Bank and Thrift Opportunity Fund — seeks to provide a high level of total return, based on current income and long-term capital appreciation.
The fund typically invests at least 80% of its net assets in equity securities of U.S. and non-U.S. financial institutions. This includes bank holding companies, thrift institutions, finance companies, securities companies, insurers, and REITs.
Banks typically made up the lion’s share of the fund’s portfolio, accounting for 81.56% as of 06/30/21. Following Banks as concentrations were Capital Markets at 9.20% and Thrifts and Mortgage Finance at 4.73%. BTO’s largest holdings included Huntington Bancshares (3.06%), Bank of America (2.45%), KKR & Co. (2.38%), Blackstone Group (2.37%), and U.S. Bancorp (2.32%).
Total return performance has been reasonably solid over the years, with the market price total return a very strong +48.93% through the YTD period ended 08/31/21.
BTO’s quarterly distributions are taxed on a variable basis, based on the underlying mix of qualified dividends, non-qualified dividends, and long-term capital gains. This investment remains suitable for low- to medium-risk taxable portfolios. With this review, we are raising the fair-value price to $48.00 from $23.95.
