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Strategies & Market Trends : Dividend investing for retirement
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To: Elroy who wrote (24120)12/26/2015 9:08:56 PM
From: E_K_S  Read Replies (1) of 34328
 

Do you mean that if the BDCs in its portfolio decline, then it would need to sell them to maintain the covenant on the borrowings it made to get to 2x leverage

I only know about the CEF funds I follow. Not sure about the BDC CEF funds but w/ the MLP funds many use leverage to 'juice' their return but can result in forced sales (by the CEF fund) if their leverage ratios exceed their fund mandate levels. There were several MLP CEF funds that were forced to sell shares to bring their fund back into compliance. The leverage used can be as much as 30% so if/when there are forced sales, it can be an amplified downside event as selling begets selling. The CEF NAV were at all time lows too and it got pretty ugly in all the MLP stocks I watch.

Those 2x & 3x ETF funds are even worse and for me, not anything i would ever want to hold and/or trade. When I buy CEF funds, I always look at the leverage they use and try to find those with little to none. One MLP fund I own has one of the lowest leverage amounts and that still 17%.

Vanguard Funds tend to use little to no leverage, so anybody looking for a BDC fund, I would check out Vanguard first. For the buy and hold investor, just play it safe and buy one of the Vanguard funds.

It's just not worth the risk especially for an IRA and/or ROTH account. That's the way I plan to invest in BDC's.

Good investing

EKS
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