If you love junk bonds and believe junk bond yields will keep moving lower, then you’ll love Oxford Lane Capital (OXLC). It’s a closed-end fund derivative of 80 derivatives of collateralized loan obligations (CLOs) consisting of 1,568 borrowers, all rated junk. The catch is, if you buy it, you won’t even be investing in the junk bonds themselves. You’ll be investing in the private equity positions that only get their dividends after all the junk bond investors are paid off first. That way you get a higher yield, in exchange for being last in line to get paid.
I fondly remember back in 2008 when President Bush went on TV and gave a lecture we could call “Mortgage-Backed Securities 101” and suddenly the fact that real estate loans were bundled up from all around the country and flung at Fannie Mae (OTC:FDDXD) and Freddie Mac (OTCQB:FMCC) became part of American public consciousness. Now we all know what these asset-backed securities things are, and how they get really dangerous when the sector that backs them starts spiraling out of control.