Nuveen Variable Rate Preferred & Income Fund (NPFD) Stock

Nuveen Variable Rate Preferred & Income Fund is now like a 'Buy' as the discount has widened back out. NPFD should benefit from lower borrowing costs as the Fed cuts its target rates, improving net investment income and distribution coverage. The fund sports an enticing double-digit distribution, though long-term distribution sustainability remains uncertain and is an area to watch.

NPFD is a closed-end fund offering exposure to preferred and income securities, with a recent distribution increase sparking the discount to narrow. Distribution coverage is weak, but seeing the discount narrow substantially was the main positive from that move anyway, which was likely driven by Saba's involvement. Distribution coverage could also improve in a lower-rate environment, which is an added catalyst moving forward.

Nuveen Variable Rate Preferred & Income Fund has announced another sizeable distribution boost following a previous raise in December 2023. Saba Capital Management has initiated a position in NPFD and filed a preliminary proxy for the election of a new independent trustee. NPFD's discount has narrowed, but it is still at an attractive level to consider investing in the preferred fund with the potential catalyst of rate cuts for a brighter future.

Different funds within the same sector often have different tilts, which can impact their performance in different market scenarios. The Nuveen Variable Rate Preferred & Income Fund has a unique coupon profile, with a low allocation to fixed-rate preferreds and a relatively large allocation to fixed-to-floating preferreds. We discuss the various market scenarios which would benefit the NPFD CEF.

Nuveen Variable Rate Preferred & Income Fund focuses on 'fixed-to-fixed' and 'fixed-to-floating' preferred securities, not primarily on true variable rate preferred securities as marketed. In the short-run, the NPFD fund has duration risk, counter to what investors may be expecting with a 'variable rate' fund. Investors seeking variable rate preferred exposure may want to consider the Invesco Variable Rate Preferred ETF (VRP).