Dynex Capital's Q3 2024 BV increase was modest and as expected, with minor portfolio adjustments and strategic derivative changes positively impacting core earnings/EAD. The company's hedging strategy shift from U.S. Treasury futures to interest rate payer swaps contributed to a modest core earnings/EAD outperformance. Despite the positive results, I maintain a risk/performance rating of 3.5 for DX, with no immediate upgrade warranted.
Minor underperformance in quarterly BV fluctuation (1.6% below our prediction, down 8% from prior quarter). Modest to notable outperformance in core earnings/EAD ($0.096 variance). ARR sacrificed BV for enhanced core earnings/EAD in Q2 2024, with risk/performance rating remaining at 4.5.
Allspring Income Opportunities Fund is a junk-bond focused CEF with a 9.1% yield. However, the EAD fund has historically delivered only modest returns with above-average volatilities, resulting in poor risk-adjusted returns compared to peers. Investors seeking junk bond exposure should consider alternatives like the PGIM High Yield Bond Fund, the BlackRock Limited Duration Income Fund, or the Credit Suisse High Yield Bond Fund.
Allspring Income Opportunities Fund offers a 9.35% yield, comparable to other junk bond funds. The fund's shares have increased while the bond market and the fund's NAV have declined, but it still trades at a discount. EAD has a high percentage of assets invested in CCC or lower junk debt, which carries a higher risk of default.
The Allspring Income Opportunities Fund is a junk bond fund that provides a very respectable 9.52% yield to its shareholders. The EAD closed-end fund has been performing quite well over the past few months, as investors have become very optimistic about the Federal Reserve cutting interest rates. The market is almost certainly wrong about the degree of 2024 rate cuts, which could result in short-term pain for anyone who buys the fund at today's levels.
We review CEF market valuation and performance through the third week of August and highlight recent market action. CEFs had another down week as August has now erased all of the July rally. Most CEF returns have lagged their yields over the last several years - will the trend continue?