BlackRock Credit Allocation Income Trust

BlackRock Credit Allocation Income Trust is a non-diversified, closed-end management investment company. Its investment objective is to provide current income, current gains and capital appreciation through investing in credit-related securities, including, but not limited to, investment grade corporate bonds, high yield bonds, bank loans, preferred securities or convertible bonds or derivatives with economic characteristics similar to these credit-related securities. The company was founded on December 27, 2006 and is headquartered in Wilmington, DE.

BTZ, a fixed income CEF, has a high 34% leverage ratio and invests in U.S. IG and HY bonds. Current credit spreads are very tight, and a mean reversion is expected in 2025, potentially leading to a -10% drawdown. The fund's distribution is not fully covered, with only 67% from cash-flows, translating to an actual yield of 6.3%.

BTZ: Narrow Credit Spreads Make This CEF A Sell (Rating Downgrade)

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The BlackRock Credit Allocation Income Trust offers a high yield of 8.96%, appealing to income-seeking investors despite its limited inflation protection. The BTZ closed-end fund's substantial allocation to fixed-income securities makes it vulnerable in an inflationary environment, which favors equities and hard assets instead. Recent economic data suggests inflation may not be under control, potentially limiting the Federal Reserve's ability to cut interest rates further.

BTZ: Risks May Exceed Upside Potential For Bonds And This Bond CEF

This analysis argues that BTZ, a BlackRock fixed income CEF, is not a good buy right now despite its attractive yield. The analysis highlights that current credit spreads are historically low, and when they widen (which is expected), it will negatively impact BTZ's price. A significant portion of BTZ's distribution comes from ROC, which essentially returns investors' own money and can erode the fund's NAV over time.

BTZ: A Hold For Now Given Where Credit Spreads Are, 9.4% Yield

BlackRock Credit Allocation Income Trust is a debt-focused closed-end fund that boasts a 9.23% current yield. The BTZ closed-end fund claims to invest in a combination of floating-rate and fixed-rate debt, but the portfolio is almost entirely in fixed-rate assets with floating-rate securities an afterthought. The BTZ fund substantially underperformed competing funds that are more flexible in the balance between floaters and fixed-rate bonds over the past three years.

BTZ: A Decent Multi-Sector Bond Fund, But Lack Of Floaters A Risk

The BlackRock Credit Allocation Income Trust offers a current yield of 9.68%, lower than other debt funds in the market. The fund's shares have increased by 7.19% since October 12, 2023, outperforming the Bloomberg U.S. Aggregate Bond Index. BTZ's performance history suggests competent management, but it favors fixed-rate securities over floating-rate securities, which may impact performance.

BTZ: Good Debt Allocation Fund, But Fixed-Rate Bonds Might Be Overpriced

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Investment-grade corporate-focused closed-end funds offer attractive fixed-income options with higher yields in the current higher-rate environment. Leverage and discounts/premiums in CEFs add volatility to consider when investing in these funds, which would otherwise be for more conservative investors. Besides the higher yields, when rates decline investment-grade funds should see a significant rebound, adding a catalyst for potential upside and 'locking in' higher yields now.

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The BlackRock Credit Allocation Income Trust offers a high yield of 10.29%, but it is lower than other fixed-income closed-end funds. The BTZ closed-end fund has outperformed its peers in the past, but may have been slower to adapt its strategy to higher interest rates. The BTZ fund's leverage is above the preferred level, but it is not out of line with other debt-focused closed-end funds.

BTZ: Decent Fund, But May Be Best Suited For A Pair Trade

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Taxable closed-end fund discounts have narrowed, reducing their attractiveness, while credit spreads have tightened, producing returns in some areas of the CEF market. Municipal CEFs remain exceptionally cheap, with discounts wider than 99% of historical observations. The risk-reward in the taxable bond CEF space is on the downside, while the upside potential in municipal CEFs is significant, but dependent on a shift in Fed policy and inflation.

CEF Report August 2023: Taxables Get Bought And Are Not Very Compelling, Munis Look Best

BlackRock Credit Allocation Income Trust provides diversified exposure to fixed-income securities with a multi-sector approach. BTZ remains attractively valued despite a bit of a narrowing discount, but distribution coverage has worsened. The fund utilizes derivatives with its highly flexible investment strategy, which could potentially provide for capital gains to fund the payout.

BTZ: This CEF Remains Attractively Valued

BTZ invests with a split between investment-grade and below-investment-grade debt with a multi-sector approach. The fund's latest discount has dropped into the double-digit area, where it becomes a more appealing investment option.

BTZ: Multi-Sector Bond Fund At A Discount

BTZ provides high current income from a portfolio of credit instruments. It has a relatively high duration of 6.4 years, which caused 2022's poor performance.

BTZ: Buy If You Think Yields Will Go Lower

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BTZ has been under pressure along with everything else through 2022 as interest rates have wreaked havoc. Now that some large declines are in and the fund has gone to a discount, there could be a better opportunity here.

BTZ: Getting To A Better Valuation For This Multi-Sector Bond Fund

This diversified CEF, while volatile, can be a great pick to deliver yield. The portfolio is managed by the reputable and prestigious BlackRock.

BTZ: Lock In Your 10% Yield Before It Bounces

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After the Fed hiked interest rates for the fourth time this year, closed-end fund investors may wonder how their income will be affected. Past cycles have shown that valuations fall ahead of time in anticipation of rising rates.

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In January, we wrote an article detailing why we were assigning a Sell rating to BlackRock Credit Allocation Income Trust. The fund is down more than -14% since our rating.

BTZ: Moving From Sell To Hold After A -14% Drop

BTZ is a fixed income closed-end-fund that focuses mostly on investment grade bonds. Coming from BlackRock, the vehicle has posted robust results in the past 5- and 10-year periods but runs a high duration profile.

BTZ: More Weakness Ahead Despite A Solid Build

BTZ has delivered solid returns for a multi-sector bond fund and is offered by the respected BlackRock. The distribution yield currently comes to 6.62% and is quite attractive as well.

BTZ: Attractive Returns, Attractive Distribution, But Interest Rates Could Be A Risk Here

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Only funds with yields over 7%, coverage higher than 85% and trading at under a +5% premium are considered. Top lists of discount, yield, DxY and DxYxZ are given.

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BTZ's diversified holdings, strong 6.5% distribution yield, and market-beating returns make the fund a buy.

BTZ: Strong Diversified Bond CEF, 6.5% Distribution Yield, But Lower Returns And Alpha Vs. Peers

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Fixed income CEF discounts continue to tighten and are approaching 20-year highs. This won't last for long. Part II of this report will focus on when this ends.

CEF Report June 2021 | The Winch Tightens Further

BTZ is somewhat susceptible to interest rate risks, more so than many of the other fixed-income funds we follow. The reason for this is because they have fairly large exposure to investment-grade bonds.

BTZ: Watch Interest Rate Risks With This Otherwise Appealing Fund

If you are looking for steady, high-income payments, PIMCO and BlackRock offer attractive closed-end funds that pay monthly. In addition to big monthly distribution payments, they both offer price appreciation, but for different reasons (i.e. a discount versus NAV, and a discount on underlying holdings versus par value).

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BTZ's distribution coverage has dipped in the last report, but isn't cause for too much concern at this time. The fund is a multisector bond fund, invested mostly in investment-grade holdings.

BTZ: Multi-Sector Bond Fund Paying A 6.91% Yield

News for BlackRock Credit Allocation Income Trust ETF (BTZ)