Swapping Credit for Higher Performance/Income

1 Sale, 3 Buys

Author

Armchair Income
June 22, 2025

The Chaos Continues

The bombing of Iran by the US is likely to affect various market sectors, particularly oil. However, I’m not a trader, and generally avoid the temptation to trade around the news. Instead, I continue to focus on increased diversification, and improving the portfolio’s ability to produce consistent cashflow. The trades below increased the portfolio yield from 10.85% to 11.61%.

CSWC Goes Monthly

If you like BDC’s but prefer monthly to quarterly distributions….good news, CSWC just changed to monthly payouts. This continues to be one of my favorite BDC’s, and yes, it's almost always expensive. I reviewed CSWC a while back, here.

EIC Distribution Cut

EIC cut their distribution from $0.20 to $0.13/month. The fund price fell approx 12% on the news. I decided to hold. Since the cut, the price of EIC is up 5.7% off its post selloff low of $12.68, and currently sits at $13.40.

ADS Analytics (a newsletter I subscribe to) bought EIC shortly after the distribution cut. Part of their reasoning is that EIC has outperformed its peers for NAV growth over the past 3 years, and is now trading at an attractive discount to NAV. Here’s a link to their analysis: https://armchairincome.link/eic.buy  

I wrote a more detailed reaction to the cut, but I want to keep this newsletter short. For those interested, I’ll include the longer version down below (at the very bottom of this edition).

DX.C Dividend Increase Announced

As explained in this review of DX.C, this preferred share was scheduled to increase its dividends substantially, because of the switch from fixed to floating rate. The new, higher dividend was recently announced, and DX.C is now yielding a healthy 9.72%.

Despite selling it recently to make room for more diversification, I continue to like this preferred stock, and may buy it back if the price moves closer to $25. I didn’t buy it this month, because NLY.F presented a better opportunity as outlined below.

Trades

Sold WDI (4.77% Allocation)

WDI has been a nice long term hold, but I want to make way for the Buys listed below. The price of WDI has appreciated to the point where the discount to NAV is gone. I have nothing against this fund, but I want to take advantage of the opportunities listed below. The portfolio will continue to enjoy exposure to a variety of credit funds and BDC’s.

The discount to NAV has gone. WDI now trades at a 0.07 premium to NAV.

Bought ADX (2% Allocation)

ADX survived the Great Depression, World War 2, and every other disaster since then…yes, it’s that old. More importantly, it has outperformed the S&P 500 since inception. Needless to say, ADX has outperformed WDI.

I’ve been eyeing this equity fund for years, but its payout schedule was 3 tiny distributions, and 1 large distribution annually. A year is a long time to wait! Recently this fund changed its distribution policy to even out the distributions so…I’m in! 

I’d like a larger allocation, but will wait for the market to cool down before getting closer to a full 5%. At the time of this recent review of ADX, it was yielding 9%. It has since appreciated slightly and is currently yielding 8.88%.

Bought NLY.F (1.77% Allocation)

I recently sold this preferred share yielding 9.5%, and now I’m buying it back. Make up your mind! 

These preferred shares won’t set the world on fire in terms of performance, but their volatility is so low, that they can function as a place to park some cash (not risk free, but low volatility). Last month I sold it because I wanted to diversify into gold, international stocks, and more Bitcoin income. This month I’m buying some back because the price dipped slightly, and at $25, there’s no call risk (the risk that the issuer forces the investor to sell it back to them for $25).

Colorado Wealth Management Fund wrote an excellent overview of this preferred stock here: https://armchairincome.link/NLY.F

Bought MSTY (1% Allocation)

This one yields a wild and crazy 86%, so lots of income for a small allocation.

I stayed away from Yieldmax funds because they have shown some serious NAV erosion; eg. TSLY. Also, most of their funds are based on a single stock, so there’s concentration risk.

MSTY is based on one stock, MSTR (Microstrategy), which in turn is based on one asset, Bitcoin. So there’s still concentration risk, but I have more faith in the long term outlook for Bitcoin, than I do for Tesla.

Going back to NAV erosion…MSTY has experienced far less than TSLY; less than 5% over 16 months since launch. More importantly, it has delivered a total return of 273% over that period! Meanwhile, the S&P 500 delivered 22%. The returns come from selling calls against the price movement of MSTR stock, which is extremely volatile, and therefore the calls bring in massive cashflow.

If Bitcoin falls 50%, this one will probably fall 70% or more. Hence the small (1%) allocation. Given the existing 2% allocation to BTCI and 1% to BITO, that brings the total Bitcoin related exposure to 4%. Review of MSTY coming to a Youtube screen near you, on June 29th.

Recent Videos

(Published Since the Last Edition of Armchair Insider)

Armchair Insider Portfolio

Armchair Insider Portfolio, June 22, 2025 - Snowball Holdings.csv.pdf932.04 KB • PDF File

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EIC Distribution Cut (Long Version)

EIC announced a reduction of their monthly distribution by 7 cents ($0.20 down to $0.13) beginning with the July 2025 payout. The reasoning given on the earnings call was the effect of the reduction in the Fed Funds Rate on net investment income. The most recent earnings reported Net Investment Income of $0.44/share for the quarter. The revised distribution of $0.13 equates to $0.39/quarter, or distribution coverage of 112.8%. Not fantastic, but sufficient for now.

Eagle Point’s Series C preferred stock (EICC) was unaffected by the news, and is currently priced at/close to its par value of $25 (8% yield). This indicates that the market doesn’t believe there is a credit issue with Eagle Point. In other words, profits go up and down, common distributions go up and down, but the company is expected to continue to pay its preferred dividends.

As of the last edition of Armchair Insider issued on May 14, 2025, EIC was 3.27% of the portfolio. After the price correction, it currently represents 3.06% of the portfolio. Assuming that the newly announced distribution rate of $0.13 remains in place for the next 12 months, EIC’s distribution reduction has reduced the projected annual income of the portfolio by 1.74%. It’s disappointing, but I won’t lose any sleep over it. This is a reminder of the importance of diversification, and that no single investment should dominate the portfolio.

This news has highlighted the close relationship between EIC and short term interest rates. If you think that the Fund will make further substantial cuts in the near term, then there’s a case for selling EIC. If you think rates will remain unchanged, or increase, there’s a case for holding or buying EIC. I’ve heard intelligent arguments predicting both rate cuts and hikes, so it's unclear to me which way interest rates will go. As such, I’m not positioning my portfolio based on a prediction of the direction of interest rates. 

EIC is the most aggressive/risky CLO fund that I hold, and so it's no surprise that it would be the most sensitive to interest rate cuts. Looking forward, the income for all CLO funds is tied to short term interest rates and if/when the Fed cuts rates, I’ll gradually rotate out of CLO funds. Until then, the risk/reward continues to look favorable.

Prior to the selloff, EIC was yielding approx 17%. At that level, my expectation was a relatively high level of risk (and reward). Going forward, EIC yields approx 12%. If I sell, I would look for another 12% yield with less risk. Nothing jumps to mind. I don’t see much benefit in rushing to realize a loss on EIC, so I will wait and review more analysis and market reaction before making changes, if any. For now, I continue to hold EIC and collect the 12% yield.

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Regards,

Armchair Income

Disclaimer: I’m sharing information about my investments, but I’m not making any recommendations to you to buy or sell anything. Each investor has their own goals, risk tolerance, and timeline, and must make their own investments decisions…then take responsibility for those decisions. I’m not a financial advisor, and I don’t advise anybody regarding their investments. If the information in this newsletter is useful or helpful in any way, then my goal is achieved :) Some of the links provided above may be associated with affiliate programs. If so, use of those links will not incur any additional cost to the user (and will, in many cases, provide a benefit to the user) and may result in a referral commission to this newsletter.