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NPCT's Leverage Squeeze: Why a 'Sell' Rating Sticks
NPCT's high leverage and tight credit spreads narrow the gap between portfolio yield and borrowing costs, making the distribution less sustainable and the risk-reward profile negative.
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The Nuveen Core Plus Impact Fund (NPCT) is carrying leverage that is high relative to its portfolio yield, and the cost of that leverage is rising. The fund's expense ratio, already elevated by its borrowing costs, leaves less room for error when credit spreads tighten.
The fund uses leverage to boost its distribution yield, a common strategy in the closed-end fund space. The gap between what NPCT earns on its portfolio and what it pays on its borrowings has been narrowing. When that gap compresses too far, the distribution becomes less sustainable.