CLO Equity Tranches: High Risk, High Reward – Inside Priority Income Fund’s Investment Strategy

New York, NY – Priority Income Fund, a closed-end fixed income mutual fund based in New York, focuses mainly on Collateralized Loan Obligations (CLO) equity and CLO debt. With approximately 76% of its $940 million in assets allocated to CLO equity, the fund demonstrates a strategic approach to investment in this specialized market.

CLO equity represents the riskier portion of a CLO issue, positioned at the bottom of the pyramid, while CLO debt occupies the remainder of the fund’s assets. Despite the inherent risks associated with CLO investments, the high returns, particularly on equity tranches, make them an attractive option for investors seeking higher yields.

In terms of default rates, Priority Income Fund has maintained a manageable LTM default rate of 1.53%, demonstrating resilience in the face of potential risks. The fund’s ability to absorb the impact of defaults through incoming interest income adds a layer of security for investors.

One notable aspect of Priority Income Fund’s investment strategy is its focus on preferred shares, offering investors an additional layer of safety and security. While preferred equity may yield lower returns compared to other investment options, the fund’s requirement of an asset coverage ratio of at least 200% provides investors with a sense of stability.

Analyzing the fund’s net interest income reveals a robust financial position, with preferred dividends well covered and the fund maintaining a healthy asset coverage ratio. Through prudent financial management, Priority Income Fund has been able to effectively balance preferred dividends with investment income, ensuring sustainable returns for shareholders.

Examining the fund’s preferred shares, particularly Series L and Series K, reveals an opportunity for investors to leverage the fund’s performance for attractive yields. Priority Income Fund’s preferred shares offer a current yield of approximately 8.3%, making them a compelling investment option in the current market environment.

Overall, Priority Income Fund’s strategic focus on CLO investments, coupled with its emphasis on preferred shares, presents an intriguing investment thesis for investors looking to diversify their portfolios. With a strong track record of managing risk and delivering stable returns, the fund remains an attractive option for those seeking exposure to the fixed income market.