AINV closed end fund?

[maxtower]

Do any of you know anything about AINV? Its a closed ended fund. I was going to do some research on this one, but was hoping one of you had beat me to it.

[Scorpion Man]

I have owned it since $15. Its a good environment for them right now. It would be ugly in a worsening credit environment. Its an OK idea for a conservative portfolio.

[maxtower]

Can you explain a little more about why it would get ugly in a bad credit environment?

[Scorpion Man]

They make junky high yielding loans (well...relatively high yielding...nothing is really very high yield anymore).

These are generally riskiest and most vulnerable to default in an economic downturn and/or rising interest rate environment.

[maxtower]

Wouldn't that be bad for a conservative portfolio?

[Scorpion Man]

hmmmm...given how i worded my response that's a reasonable question. I guess I said conservative portfolio because it has a big dividend (although its taxable as ordinary income I believe). Also, we are in an environment right now with no hint of corporate credit problems. If evidence started to build that we were in a recession, or that the Fed would have to get more aggerssive with rates, its a sale.

The stock could definitely go to $18-19. Its highly unlikely it goes to $12 or so and I would say almost no chance it "blows up", i.e. you wake up one day soon and they miss earnings so badly it gaps down huge.

So those are your risks...interest rate, and credit. So in summary there are bad things that can happen over time, and I would say the stock has less than average risk and especially volatility.

But to be fair, its not super conservative.

[maxtower]

Yes, I am attracted to the yield. Is the type of fund that has a decent chance of share price appreciation? Or is it one of those that is already paying out everything it makes?

[Scorpion Man]

Yes to both, depending on when you buy it. They have to pay out what they make...but they can either make more or have the interest rate environment change so that the stock yields less. like i said, i paid $15 and have been collecting a dividend along the way and its $22+. That said, given where interest rates are the time for big capital appreciation is probably behind us. The other thing to look at is book value multiples. When i bot the stock it was trading at a low multiple of book. i cant remember what it trades at now.

[laserboy]

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I have owned it since $15. Its a good environment for them right now. It would be ugly in a worsening credit environment. Its an OK idea for a conservative portfolio.

[/ QUOTE ]

I don't know anything specifically about AINV, but as far as junk bonds go:

a) junk bond default rates are at historical lows and

b) the spread between junk bonds and treasuries are at historical lows

Junk bond investors are currently being paid approximately 3% risk premium over treasuries to invest in the bonds of distressed companies when historically they have received more than that. At this point, I think its more likely that credit defaults go up than down and that the spread between junk and treasuries goes up than down.

In short, I think there is good reason to be bearish on junk bonds, especially in a tightening credit environment and slowing economy.

[Scorpion Man]

[ QUOTE ]
[ QUOTE ]
I have owned it since $15. Its a good environment for them right now. It would be ugly in a worsening credit environment. Its an OK idea for a conservative portfolio.

[/ QUOTE ]

I don't know anything specifically about AINV, but as far as junk bonds go:

a) junk bond default rates are at historical lows and

b) the spread between junk bonds and treasuries are at historical lows

Junk bond investors are currently being paid approximately 3% risk premium over treasuries to invest in the bonds of distressed companies when historically they have received more than that. At this point, I think its more likely that credit defaults go up than down and that the spread between junk and treasuries goes up than down.

In short, I think there is good reason to be bearish on junk bonds, especially in a tightening credit environment and slowing economy.

[/ QUOTE ]

I actually agree with everything you say. The main reason I am holding AINV is becasue I am earning yield on $ that will go to the tax man if I sell it because my capital gain is a significant %. I would not put fresh money in it, but its not horrible either. I meant what I said before...its a good environment right now. I would be gone at the first sign of credit issues in the larger economy.