Here ya go I2:
Big difference. PRFRX holds floating rate secured corporate loans and floating rate corporate bonds (which would largely be unsecured, I think, like other corporate bonds). CLOs are leveraged (9 or 10 to 1) portfolios of floating rate secured corporate loans. Imagine a commercial bank that holds corporate loans and other debt. PRFRX is like owning the loans that are in that bank (unleveraged). Owning a CLO is like owning the equity in the bank that owns those loans.
CLOs were designed to be cash flow vehicles so you are going to get lots of cash flow over time, not all of it being total return. ECC has generated 10% annual total return over the past 5 years, based on its market price, and 12% annual total return over 5 years based on its NAV. That's pretty good, especially considering that includes the huge market hit of a year ago. OXLC did even better, with 15% annual market price total returns and 18% annual NAV returns over 5 years. If the funds' NAV or market price trended down during that period, it just means the distributions were even higher than the total returns, and they were giving back some of the distribution in price and/or NAV erosion. But total return is what matters. For example, if I collect 15% annual distributions on average, and my price or NAV erodes by 3% per year, for a net total return of 12% per annum, I'm still going to be pretty happy, since that 12% exceeds a typical "equity return" by 2-3% per annum. Obviously if I want my principal to remain intact, then I'd have to reinvest and compound at least 3% of that distribution each year, even if I want to keep and spend the 12% total return. If I'm in an accumulative mode and want my portfolio to compound and grow by the amount of my total return (12%), then I'd have to reinvest the full 15%. |
