The cannabis credit market is experiencing a resurgence, with several major refinancings taking place. This article examines leverage metrics, particularly the Total Liabilities to Market Cap ratio, as a crucial indicator of credit risk in the cannabis sector. The author argues that this ratio provides valuable insights into a company’s financial flexibility and potential for credit distress, highlighting its importance for investors.
Closed-end funds, a type of publicly traded investment fund, are offering enhanced yields for income-seeking investors, according to DoubleLine CEO Jeffrey Gundlach. These funds trade throughout the day, have a limited number of shares, and often use leverage to boost returns. Gundlach highlights their advantages in a moderate risk environment, with discounts and the potential for double-digit yields available without significant credit risk.
The Calamos Convertible Opportunities and Income Fund (CHI) is a closed-end fund that offers a high yield of 10.44%. It invests primarily in convertible securities and high-yield bonds, which provide potential capital gains through conversion to common stock and coupon payments, respectively.
The fund has outperformed the convertible bond index over the past six months but underperformed the S&P 500. Its largest holdings include companies such as Uber, Ford, and Wayfair, which are typically revenue or cash-flow constrained and issue convertible securities as an alternative to traditional debt.
While the fund has a relatively low annual turnover of 39.00% and a moderate expense ratio of 1.39%, it employs leverage, which can amplify both gains and losses. Currently, its leverage ratio is 36.85%, which is within the acceptable range for closed-end funds.
The fund’s distribution coverage has been a concern in the past, but it appears to have improved recently. Its net asset value has increased over the past year, indicating that it has earned sufficient investment profits to cover its distributions.
Overall, the Calamos Convertible Opportunities and Income Fund offers a compelling combination of high yield, moderate risk, and potential for capital gains. However, its premium to net asset value is currently quite high, which may warrant caution before investing.
The DoubleLine Income Solutions Fund is a closed-end fund that seeks to provide investors with a high level of income. The fund primarily invests in below-investment-grade debt securities and emerging markets. While the fund has a reasonable leverage ratio compared to its peers, its low transparency and lack of recent financial information are concerns. The fund has a moderate 10.90% yield, but it has failed to cover its distributions over the past two years. Overall, the fund’s positioning is reasonable, but caution is advised due to the lack of transparency and the fund’s recent net asset value destruction.
