Nuveen Variable Rate Preferred & Income Fund: A High-Yielding CEF with Interest Rate Risk to Consider

The Nuveen Variable Rate Preferred & Income Fund (NYSE:NPFD) is a closed-end fund offering a 10% yield. It provides an alternative for income-seeking investors to achieve their goals. The fund invests in a diversified portfolio of preferred securities, which come with a unique interest rate risk. Investors should be aware of this risk when considering NPFD as a potential investment.

The Nuveen Variable Rate Preferred & Income Fund (NYSE:NPFD) has garnered significant attention from income-seeking investors due to its attractive 10% yield. However, it is essential to delve deeper into the fund's investment strategy and underlying risks before making investment decisions.

NPFD is a closed-end fund managed by Nuveen Fund Advisors, LLC. Its primary investment objective is to provide a high level of current income and total return. The fund achieves this goal by investing in a diversified portfolio of variable rate preferred securities and other variable rate income-producing securities from various sectors, including banks, utilities, and insurance companies. The fund may also invest up to 20% of its managed assets in contingent capital securities or contingent convertible securities (CoCos) and up to 15% in companies located in emerging market countries, but only in United States dollar-denominated securities.

As of August 5, 2024, NPFD's price stood at $18.37, reflecting a decline of over 1.71% from the previous day. The fund's ex-dividend date is August 15, 2024, with the next dividend payment scheduled for August 4, 2024 [1]. However, it is essential to note that the fund's price has fallen below its 15-day moving average, indicating a potential downtrend [2].

While the fund's yield is undoubtedly appealing, investors must be aware of the unique interest rate risk associated with preferred securities. Preferred securities typically have fixed interest rates, but their yields may fluctuate based on market conditions. As a result, investors in NPFD may experience capital gains or losses if interest rates rise or fall, respectively [3].

Moreover, the fund's investment in CoCos and emerging market securities adds an additional layer of risk. CoCos are financial instruments that provide their holders with the right to convert their securities into common stock under specific conditions. These securities can be risky, as their conversion prices may be significantly higher than the current market price of the underlying common stock. Additionally, investing in emerging market securities can be volatile due to political, economic, and currency risks [3].

In conclusion, while the Nuveen Variable Rate Preferred & Income Fund (NPFD) offers an attractive yield for income-seeking investors, it is essential to carefully consider the fund's investment strategy and underlying risks before making investment decisions. Preferred securities' interest rate risk, the fund's investment in CoCos and emerging market securities, and potential market volatility are all factors that investors should take into account.

References:

[1] CeFa.com. (n.d.). Nuveen Variable Rate Preferred & Income Fund. Retrieved August 5, 2024, from https://www.cefa.com/fund-selector/detail/NPFD/
[2] Financial Times. (2024, August 5). Nuveen Variable Rate Preferred & Income Fund (NPFD:NYQ). Retrieved August 5, 2024, from https://markets.ft.com/data/equities/tearsheet/summary?s=NPFD:NYQ
[3] Financial Times. (2024, August 5). Nuveen Variable Rate Preferred & Income Fund (NPFD:NYQ) Profile. Retrieved August 5, 2024, from https://markets.ft.com/data/equities/tearsheet/profile?s=NPFD:NYQ