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ARDC: Quick Update On This 9%-Yielding CEF

Published Tue, 15 Sep 2020 08:20:12 -0400 on Seeking Alpha

Seeking AlphaClosed End FundsARDC: Quick Update On This 9%-Yielding CEFSep. 15, 2020 8:20 AM ET|| About: Ares Dynamic Credit Allocation Fund (ARDC), Includes: ARESby: Stanford ChemistStanford Chemist CEF/ETF Income LaboratoryCEF/ETF income and arbitrage strategies, 8%+ portfolio yieldsSummaryARDC just released its semi-annual report.
Earnings dip slightly due to lower rates and leverage.
I'm still bullish on ARDC due to the attractive discount, CLO exposure and dynamic credit profile.
Author's note: This article was released to members on September 3, 2020, with certain numbers updated. Please check latest data before investing.

Ares Dynamic Credit Allocation Fund (ARDC), a seemingly perennial entry in our DxY and DxYxZ top lists from our "High-High-Low" reports, has recently released its semi-annual report so I just wanted to give members and readers a quick update on this fund, which is a holding in our Tactical income-100 portfolio. ARDC last closed on September 11, 2020 at a discount of -13.49% with a yield of 9.03% paid monthly (NAV yield is 7.82%).
Earnings dip slightly
For the first six months of 2020, the net investment income of the fund was $0.64, which if annualized is a mild -8% decrease compared to the earnings for the 12 months ended October 31, 2019 (there was a recent change of fiscal year). We would expect the earnings to have gone down because ARDC has significant senior loan exposure, which is floating rate.

(Source)
The good news is that the earnings did fully cover the distributions of $0.62 over 2020 H1, at 103% coverage. Note that there was a cut in the monthly distribution from $0.1075 to $0.0975 in April of this year. The coverage going forward, assuming steady earnings, would be 108%.

(Source: CEFConnect)
The report also shows that the fund did have to delever a bit, going from $160 million in borrowings at the end of 2019 to $134 million at the end of 2020 H1 (-16.3% decrease). The... Read more


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