The Easy Income portfolio is doing exactly what we built it to do.
It is collecting a substantial amount of cash from a diversified group of investments that do not all depend on the same economic outcome, the same interest-rate forecast or the same direction for the stock market.
Based on the current portfolio spreadsheet, the average indicated yield across our 14 positions is 10.10%.
That is an extraordinary level of portfolio income in an environment where broad credit conditions remain healthy, financial conditions remain loose and many of the securities we own are still priced as though considerably more trouble is coming.
That last point is worth spending some time on because it gets to the heart of what is happening in the income markets right now.
There are plenty of scary headlines. Private credit defaults have increased. The weakest junk bond borrowers are under pressure. Office real estate continues to be a problem. Interest rates remain volatile, and there is no shortage of people willing to tell you that the next great financial accident is right around the corner.
The actual credit markets are telling us something much less dramatic.
The Credit Dashboard Remains in Nirvana
As of Aug. 13, the ICE BofA U.S. High Yield Index option-adjusted spread was 271 basis points. Our Caution line is approximately 350 basis points, so we remain comfortably below the level that would cause us to start becoming defensive.
AA corporate spreads were just 58 basis points, which tells us that the market sees very little stress among higher-quality borrowers.
The Chicago Fed National Financial Conditions Index was negative 0.549 for the week ended Aug. 7, meaning financial conditions remain looser than historical averages.
There is one obvious warning light.
CCC and lower-rated spreads were 1,024 basis points. The weakest companies are having trouble, and that is not something we should ignore. After several years of higher borrowing costs, companies with too much leverage, inadequate cash flow and poor capital structures are finding refinancing considerably more difficult than it was during the free-money era.
The dashboard looks like this:
Broad high yield: 271 basis points
CCC and lower: 1,024 basis points
AA corporate bonds: 58 basis points
National Financial Conditions Index: Minus 0.549
That is not the same thing as a broad credit crisis.
If problems at the bottom of the credit market were beginning to spread throughout the financial system, we would expect broad high-yield spreads to be climbing rapidly through 350 basis points and eventually toward 500. We would expect AA spreads to widen. We would expect financial conditions to tighten.
None of that is happening.
The credit markets are not telling us that the world is ending. They are telling us to distinguish between good credit and bad credit.
That is an environment we can work with, and it is particularly well suited to the structure of the Easy Income portfolio.
Where the Portfolio Stands
The portfolio currently consists of 14 holdings generating income from very different parts of the market:
- VanEck BDC Income ETF (BIZD) — 11.36% indicated yield
- ArrowMark Financial Corp. (BANX) — 9.37%
- Dorchester Minerals LP (DMLP) — 11.48%
- Saba Closed-End Funds ETF (CEFS) — 5.97%
- Tortoise Energy Infrastructure Corp. (TYG) — 12.11%
- Virtus InfraCap U.S. Preferred Stock ETF (PFFA) — 9.70%
- State Street Blackstone Senior Loan ETF (SRLN) — 7.29%
- Special Opportunities Fund (SPE) — 14.74%
- abrdn Asia-Pacific Income Fund (FAX) — 13.72%
- WisdomTree Private Credit and Alternative Income Fund (HYIN) — 12.98%
- Simplify MBS ETF (MTBA) — 5.00%
- Angel Oak Financial Strategies Income Term Trust (FINS) — 10.90%
- Infrastructure Capital Bond Income ETF (BNDS) — 8.05%
- iShares Mortgage Real Estate ETF (REM) — 8.73%
What I like most about that list is not simply the amount of income. It is where that income comes from.
BIZD and HYIN give us exposure to private credit. DMLP gives us direct participation in oil and natural gas royalty cash flows. TYG owns energy and power infrastructure. MTBA gives us high-quality agency mortgage exposure, while REM gives us mortgage REIT exposure. BANX and FINS allow us to exploit less-followed opportunities in bank credit. CEFS and SPE give us a way to profit from closed-end fund discounts and activist activity. FAX provides international bond exposure. PFFA supplies preferred-stock income. SRLN and BNDS give us corporate credit exposure.
These are very different sources of cash flow, and that is exactly what we want.
We do not need every asset class to work at the same time. We simply need the underlying cash flows to remain intact and the risks to stay within the range for which we are being compensated.
Private Credit: Problems, but Also Opportunity
Private credit remains the most interesting part of the portfolio right now, largely because it has become one of the most controversial areas in the financial markets.
There are legitimate reasons for concern. Private credit defaults have risen. Payment-in-kind interest has increased. Nonaccruals have moved higher at some business development companies, and dividend coverage has weakened across portions of the BDC universe. The U.S. private credit default rate recently reached approximately 6%, with particularly elevated stress in industrials, manufacturing and healthcare.
Those are real numbers, and we are not going to pretend otherwise.
At the same time, broader middle-market credit data remain far more nuanced. KBRA’s database continues to show median interest coverage around 1.6 times and median gross leverage around 6.1 times. Near-term maturity pressure has actually declined, and only a relatively small portion of the debt in KBRA’s universe matures during the remainder of 2026.
In other words, there are clearly weak credits in the system, but there are also thousands of middle-market borrowers that continue to make payments and operate normally.
That lines up almost perfectly with what we see in the public credit markets.
CCC credit is under substantial pressure. Broad high yield is not.
What makes the setup especially interesting is how far publicly traded BDCs have already fallen. A large percentage of the sector has traded at meaningful discounts to net asset value. Some BDCs have been changing hands around 75 cents to 80 cents on the dollar.
That tells me the market has already priced in a fairly ugly outcome.
The private credit trade does not need everything to suddenly become wonderful. It simply needs conditions to stop getting worse.
If nonaccrual formation stabilizes, NAV declines moderate and dividend coverage stops deteriorating, investors may begin paying closer to NAV for these securities. A BDC that moves from 75% of NAV to 90% of NAV can produce substantial capital appreciation before we collect a single distribution.
That is why I continue to think private credit may be one of the more interesting rebound opportunities in the income markets.
VanEck BDC Income ETF (BIZD) — Indicated Yield: 11.36%
BIZD is our broad BDC position. It gives us diversified ownership of publicly traded business development companies rather than forcing us to make a heroic bet on a single underwriting platform.
There are perfectly good reasons BIZD has been weak. Several BDCs have reported higher nonaccruals. Cash dividend coverage has weakened. Some managers have reduced distributions.
The question is whether those problems are already reflected in the price.
I increasingly think they may be.
A recovery in BIZD does not require zero defaults or every portfolio company to suddenly start growing rapidly. It requires stabilization. If underlying borrowers continue growing modestly, interest coverage stabilizes and loss formation stops accelerating, discounts across the BDC sector could narrow substantially.
In the meantime, an 11.36% indicated yield gives us a very nice paycheck while we wait.
WisdomTree Private Credit and Alternative Income Fund (HYIN) — Indicated Yield: 12.98%
HYIN gives us another route into private and alternative credit, spreading its exposure among BDCs, closed-end funds, REITs and other alternative-credit vehicles.
The attraction is diversification. We are not depending on a single manager, one loan portfolio or one underwriting team. That does not eliminate sector risk, but it substantially reduces the danger that one badly underwritten credit ruins the entire investment thesis.
The argument for HYIN is therefore much the same as the argument for BIZD.
If private credit deteriorates sharply from here, the fund will struggle. If conditions merely stabilize, a nearly 13% indicated yield combined with recovering sector valuations could produce a very attractive total return.
State Street Blackstone Senior Loan ETF (SRLN) — Indicated Yield: 7.29%
SRLN occupies a different part of the credit structure. It owns senior secured floating-rate corporate loans.
This is not as exciting as a 12% or 13% indicated yield, but that is not the job SRLN is supposed to perform. We are sitting higher in the capital structure, generally owning first-lien senior secured obligations. If a borrower gets into trouble, these lenders are ahead of junior creditors and equity holders.
The floating-rate structure also reduces traditional duration exposure. In an environment where nobody really knows exactly where long-term interest rates are going next, that has value.
With broad high-yield spreads at 271 basis points, the loan market is not telling us to expect widespread defaults. A 7.29% indicated yield from senior secured credit is perfectly acceptable.
Infrastructure Capital Bond Income ETF (BNDS) — Indicated Yield: 8.05%
BNDS adds another layer of corporate credit exposure, but with active management.
I like the active approach right now because high-yield spreads are tight. When spreads are extremely wide, an investor can often buy almost anything and do well as conditions normalize.
That is not where we are today.
At 271 basis points, there is not much margin for sloppy credit work. Some companies deserve tight spreads. Others do not. The ability to avoid weaker borrowers may matter more over the next several years than simply owning the entire junk-bond universe.
BNDS gives us that flexibility while still providing an 8.05% indicated yield.
Energy Income Remains a Favorite
The energy side of the portfolio remains one of my favorite areas.
It gives us cash flow tied to real assets and energy demand rather than another variation of corporate credit.
Dorchester Minerals LP (DMLP) — Indicated Yield: 11.48%
Dorchester Minerals is our direct oil and gas royalty exposure.
The reason I like the business model is simple. Dorchester owns mineral, royalty and overriding royalty interests. It does not have to spend billions of dollars drilling wells, buying rigs and constantly replacing production the way a conventional exploration and production company does.
The operators make those expenditures.
Dorchester collects royalty income.
Distributions will move around from quarter to quarter because commodity prices and production volumes move around. That is fine. We are not buying DMLP because we expect a perfectly smooth quarterly dividend.
We are buying it because we want direct exposure to oil and gas cash flows without taking on the full capital intensity of the drilling business.
An 11.48% indicated yield is a pretty good way to be compensated for that variability.
Tortoise Energy Infrastructure Corp. (TYG) — Indicated Yield: 12.11%
TYG gives us our primary exposure to midstream energy and power infrastructure.
This story has become much larger than pipelines and oil prices.
Natural gas demand is rising. LNG export capacity continues to expand. Data center construction is increasing electricity demand. Domestic manufacturing projects require enormous quantities of dependable energy.
All of that means pipelines, processing plants, storage terminals and related infrastructure should remain valuable regardless of whether crude oil is $10 higher or lower next month.
The midstream industry has also changed considerably during the last decade. Balance sheets are generally stronger. Management teams are far more disciplined about capital spending. Free cash flow generation is better, and much more of that cash is finding its way back to shareholders through distributions and repurchases.
TYG uses leverage, so it will be more volatile than an unleveraged basket of pipeline companies.
The compensation is a 12.11% indicated yield, and I think that is more than adequate for the risk we are taking.
Mortgage Income: Quality on One Side, Opportunity on the Other
Simplify MBS ETF (MTBA) — Indicated Yield: 5.00%
MTBA sits at the opposite end of the excitement spectrum, and that is perfectly fine.
Its 5.00% indicated yield makes it one of the lowest income producers in the portfolio. It is also one of our highest-quality positions.
MTBA primarily gives us agency mortgage-backed securities exposure. That means conventional credit risk is extremely limited compared with private credit, mortgage REIT equity or junk bonds. The main risks are interest rates, mortgage spreads and prepayments.
That makes MTBA a stabilizer.
If credit conditions deteriorate materially, I do not want every position in Easy Income dependent on corporate borrowers or leveraged financial companies. I want something likely to behave differently.
A 5.00% indicated yield from high-quality mortgage assets gives us exactly that.
iShares Mortgage Real Estate ETF (REM) — Indicated Yield: 8.73%
REM takes more risk and pays us accordingly.
The fund owns mortgage real estate investment trusts, exposing us to funding costs, interest-rate volatility, leverage and credit conditions.
Residential mortgage credit remains relatively healthy. Commercial mortgage credit is more complicated, particularly when we get into office properties.
Investors make a mistake when they discuss commercial real estate as if it were one asset class. A fully leased logistics facility outside Dallas and a half-empty downtown office tower are both technically commercial properties. They are not remotely the same credit.
The office market remains troubled, particularly in weaker central business districts. Multifamily, industrial, logistics and many retail properties look considerably better.
REM gives us broad mortgage REIT diversification while producing an 8.73% indicated yield. That is enough income to justify the position, but this remains an area where we will continue paying close attention to credit deterioration.
Banking’s Less-Familiar Income Opportunities
The banking-related positions may be the least familiar part of Easy Income for many readers, but they are also some of the most interesting.
ArrowMark Financial Corp. (BANX) — Indicated Yield: 9.37%
BANX gives us access to bank regulatory capital and risk-transfer securities.
The basic idea is that banks can transfer a defined portion of a loan portfolio’s credit risk to outside investors while continuing to hold the loans themselves. The bank receives regulatory capital relief, which has economic value, and is therefore willing to pay investors an attractive spread for taking that risk.
Europe has been using these structures for years, and the U.S. market continues to grow.
This is not free money. We are effectively selling credit protection on a defined bank loan portfolio. The quality of the collateral, attachment points, diversification of the underlying pool and strength of the sponsoring bank all matter.
The reason I like the opportunity is that we are being paid institutional credit spreads for accepting risks that can be analyzed.
With the credit dashboard showing healthy bank and corporate credit conditions, a 9.37% indicated yield is attractive compensation.
Angel Oak Financial Strategies Income Term Trust (FINS) — Indicated Yield: 10.90%
FINS is our dedicated community and regional bank debt position.
This continues to be one of my favorite odd corners of fixed income.
Small-bank debt is frequently underfollowed. Individual issues can be relatively small, trading can be thin and the largest institutional bond funds often cannot own enough of an issue to justify doing the work.
That creates opportunity for specialists.
The banking system has moved a long way from the panic conditions of 2023. Deposit costs still matter. Commercial real estate still matters. Neither is currently creating a systemic banking problem.
Financial conditions remain loose. High-quality credit spreads remain tight. Broad high-yield spreads remain well below our Caution threshold.
Against that background, an indicated yield of 10.90% from a professionally managed portfolio of bank debt looks very attractive.
Virtus InfraCap U.S. Preferred Stock ETF (PFFA) — Indicated Yield: 9.70%
PFFA gives us exposure to U.S. preferred securities.
Preferred stocks occupy an interesting part of the capital structure. They sit below bonds but above common equity. That means we should be paid more than senior creditors while still having priority over common shareholders.
Many preferred securities also have a $25 liquidation preference. When we can buy them below par, we potentially have two sources of return. We collect the income, and we may eventually receive a capital gain if the security is redeemed at $25.
PFFA uses leverage, so this is not a low-volatility preferred-stock fund. That leverage is one reason the indicated yield approaches 10%.
The key remains issuer quality. A high-yielding preferred from a strong issuer can be attractive. A high-yielding preferred from a company that cannot afford the dividend can become a disaster.
The current credit environment remains supportive enough that I am comfortable with the exposure.
Discounts, Activism and Arbitrage
CEFS and SPE give us something completely different from the rest of the portfolio.
These are not conventional bond or stock income strategies. They are discount and arbitrage strategies that also happen to throw off cash while we wait.
Saba Closed-End Funds ETF (CEFS) — Indicated Yield: 5.97%
The concept behind CEFS is simple.
We want to buy $1 worth of assets for less than $1.
Closed-end funds frequently trade at discounts to the value of the securities they own. Those discounts can persist because there is no normal creation-and-redemption mechanism forcing market prices back toward NAV.
That creates an opportunity for activist investors.
Tender offers, repurchases, liquidations, mergers and conversions can all help close the gap.
The legal environment for closed-end fund activism has become somewhat more difficult during 2026, but the underlying math has not changed. If we can buy $1 worth of liquid assets for 85 cents and collect distributions while waiting for someone to force the discount toward NAV, there is money to be made.
Special Opportunities Fund (SPE) — Indicated Yield: 14.74%
SPE is the more direct activist and special-situations position.
Its 14.74% indicated yield should not be treated the same way as a bond coupon. Closed-end fund distributions can include capital gains, special distributions and managed distributions.
The real attraction is the combination of income and discounted asset values.
SPE itself can trade below NAV. It can then use its capital to buy other closed-end funds that are also trading below NAV.
That gives us the possibility of a discount on top of a discount.
Those situations can persist longer than anyone expects. Eventually, however, someone usually decides that buying $1 worth of assets for 75 or 80 cents is too attractive to ignore.
Activists push for tenders. Boards authorize buybacks. Funds merge or liquidate. Discounts narrow.
While all of that is taking place, we keep collecting distributions.
abrdn Asia-Pacific Income Fund (FAX) — Indicated Yield: 13.72%
FAX gives us another form of diversification, this time through Asia-Pacific fixed income.
Again, that 13.72% figure should not be read as if we owned a sovereign bond paying a 13.72% coupon. The fund uses leverage and a managed distribution structure.
What matters to me is the combination of income and geographic diversification.
Most of the Easy Income portfolio is ultimately tied in some fashion to U.S. interest rates, U.S. credit conditions or U.S. economic growth. FAX gives us exposure to another part of the world.
Australia and other Asia-Pacific sovereign markets offer high-quality credit with yields that have become considerably more attractive as global interest rates normalized. Japan is moving through a completely different monetary cycle than the United States.
That matters.
Diversification is most useful when the assets actually respond differently to economic events. FAX provides currency exposure, geographic diversification and bond exposure outside the U.S. monetary cycle while also providing a very substantial indicated yield.
Portfolio Perspective
When I look at the entire portfolio, the 10.10% average indicated yield is the number that keeps jumping out at me.
We do not need enormous capital gains to generate a satisfactory return.
The cash flow itself is doing a tremendous amount of work.
That does not mean price no longer matters. A 20% decline does not magically disappear because something has a 10% indicated yield.
What the income does provide is time.
We can wait for BDC discounts to narrow.
We can wait for closed-end fund activists to unlock trapped value.
We can wait for preferred stocks bought below par to be redeemed.
We can wait for mortgage spreads to normalize.
We can wait for bank debt markets to recognize that the banking system is healthier than some of the headlines imply.
Waiting is considerably easier when cash keeps showing up.
There are risks in this portfolio, and I do not want anyone to mistake high income for low risk. Private credit defaults are elevated. CCC spreads remain above 1,000 basis points. Office commercial real estate remains troubled. Long-term interest rates are volatile. Several of our funds use leverage, and some distributions will fluctuate.
That is precisely why the portfolio is diversified.
What we do not see today is evidence of broad financial stress.
High-yield spreads remain at 271 basis points. AA spreads remain at 58 basis points. Financial conditions remain loose. The credit dashboard remains firmly in our Nirvana regime.
That tells me we should stay invested.
It does not tell me we should become careless.
Private credit is the perfect example. There are bad loans. There are weak BDCs. There are borrowers that are not going to make it.
That does not mean the entire asset class is broken.
When a diversified BDC portfolio can give us an 11.36% indicated yield while many underlying companies trade at unusually large discounts to NAV, I want to pay attention.
When alternative private-credit exposure gives us a 12.98% indicated yield while broad credit spreads remain historically tight, I want to pay attention.
When community and regional bank debt produces a 10.90% indicated yield while financial conditions remain loose, I want to pay attention.
When energy infrastructure produces a 12.11% indicated yield while natural gas demand, electricity consumption and infrastructure investment continue rising, I want to pay attention.
That is what this portfolio was designed to do.
We are not trying to predict next month’s S&P 500 close, and we are not betting everything on the next Federal Reserve meeting.
We are trying to find mispriced income.
We want securities where the cash return compensates us for taking understandable risks. We want diversified sources of income. We want discounts when we can find them. We want seniority in the capital structure when credit conditions become questionable.
Most of all, we want to get paid while we wait.
With an average indicated yield of 10.10%, the Easy Income portfolio is paying us very well to do exactly that.
The credit markets are not telling us to run for cover.
They are telling us to be selective.
That is precisely what we intend to do.
In the meantime, we keep collecting the checks.
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