Adding a CLO Fund

MAXI: Sold (2.05% Allocation)

My best performing investment for 2024 was MAXI. A total return of 85% since I started buying it almost a year ago. Why sell a top performer?

The performance was driven by Bitcoin, and similar funds had similar results. Subsequent to buying MAXI, the fund’s strategy changed, and it’s now a combination of futures trading, and numerous option positions on equities. Most of the holdings are unrelated to Bitcoin. 

You can view the MAXI holdings here.

I have no issue with the fund’s performance to date, it’s excellent. However, I’ve found it challenging to keep track of the changes in strategy.

MAXI has been replaced by 2 Bitcoin funds, as explained further below.

SLRC: Sold (1.13% Allocation)

SLRC is up a respectable 14.5% since I purchased it (not including distributions). I don’t have any concerns about this BDC, but I’m looking to consolidate my BDC allocation into fewer positions. Specifically, weight towards the PBDC fund, and augment that holding with a handful of favorite individual BDC’s.

PDI: Reduced Allocation from 2.2% to 0.96%

Pimco recently announced cuts to 2 of its funds, PCM and RCS. I don’t hold either of those funds, but it’s worth noting that PDI has been distributing at a similarly high level, when compared to these 2 funds.

SVOL: Reduced Allocation from 2.18% to 0.94% 

Continuing the theme from the last newsletter, my love affair with SVOL is fading. It has performed well when the market was calm, at times outperforming the S&P 500. However, volatility is its kryptonite. 

Recently, volatility, as measured by the VIX, has crept up again. Consequently, SVOL’s performance has dropped off. Over the past year, its total return was just 9%.

This analysis from Kevin Shan on Seeking Alpha presented a useful update. The theme of the article was that SVOL can still make sense if you 1/Withdraw only 8% and reinvest the rest and 2/ Buy the dip during volatility spikes.

BITO: Bought (1.16% Allocation)

BITO was one of the first Bitcoin funds and has a (relatively) simple strategy of selling Bitcoin futures. These Bitcoin income funds will always trail spot Bitcoin ETF’s like IBIT or HODL, but if you want income, they’re an interesting way to diversify, albeit with considerable volatility.

BTCI: Bought (1.16% Allocation)

The NEOS Bitcoin fund is new, so I waited for a few distributions before buying it. Normally I’d wait longer, but I’m familiar with the option strategies they use for equities, and the strategy for this fund is similar.

The key difference between BTCI and NEOS’ equity funds, is that they use options to synthetically replicate the price action of Bitcoin. They would prefer to simply hold spot Bitcoin but the SEC regulations limit the percentage of spot Bitcoin that this type of fund can hold to 25%. 

The holdings for BTCI can be viewed here. 

https://neosfunds.com/btci/#holdings 

Why 2 Bitcoin funds? This is a new asset class and it's unclear which strategy; futures or options, will prevail. I’m backing both horses until we have more performance data to review.

BTCI is so new that we don’t have enough data to assess its performance. I have a hunch that it will underperform BITO during bull periods, and outperform BITO during pull backs. Also, the BITO yield will vary wildly, and BTCI will find a cruising altitude that yields approximately 25 to 30%.

Stay tuned in the next 3 to 6 weeks for an interview with NEOS to discuss the strategy behind BTCI.

CLOZ: Bought (3.34% Allocation)

I reviewed CLOZ on December 1st 2024 and came to the conclusion that it’s a good fit for the portfolio. I delayed buying because 1/ There was a change of senior management and 2/ In December, the distribution dropped from $0.23 to $0.18. I didn’t know if that was a result of a Fed cut (CLO’s are driven by short term rates), or just a random variation. CLO distributions vary as loans mature and are replaced by new loans.

The January distribution climbed back up to $0.21…back within the normal range. Here’s a link to the Review Video.