Invesco Senior Income Trust: Deep Undervaluation and High Discount to NAV

Invesco Senior Income Trust (VVR) is a deeply unloved investment with a high discount to its net asset value. The fund's price has made a two-standard deviation move, and it has been undercovered since the beginning of the year. Despite this, the thesis remains unchanged, and the fund's performance has been stable with a low expense ratio and a high dividend yield. The fund's manager has a track record of success and has maintained a stable portfolio with a focus on high-quality, dividend-paying stocks.

Invesco Senior Income Trust (VVR) has been a deeply unloved investment in the financial markets, with a significant discount to its net asset value (NAV). The fund's price has experienced a two-standard deviation move, and it has been undercovered since the beginning of the year. Despite this, the fund's performance has been stable, with a low expense ratio and a high dividend yield. The fund's manager has a track record of success, maintaining a stable portfolio focused on high-quality, dividend-paying stocks.

The recent market conditions have contributed to VVR's discount to NAV. The Federal Reserve (Fed) has cut rates, and the SOFR futures market is pricing in further cuts by the end of 2026. This reduction in yields has led to a decrease in the yield on VVR, as lower Fed Funds translate to lower yields for leveraged loans.

The leveraged loan market has seen tight spreads but high price gap-downs, as evidenced by the First Brands term loan moving from par to 42 cents. This indicates a market with limited upside but significant downside potential.

VVR's distribution needs to come down. As of September 2025, the fund's distribution is around 13.3%, which is not sustainable. With the Fed Funds reduction, the fund's distribution is expected to decrease to around 10% after the lower Fed Funds percolate into the holdings.

The fund continues to represent a leveraged take on bank loans, with a high 35% leverage ratio. This amplifies moves if credit goes south, making VVR a risky investment.

Despite the recent widening in the discount, VVR remains within a fair value range. The fund is correctly valued from a discount perspective, given the lower Fed Funds, market outlook for SOFR, and fundamental picture. However, investors should be cautious about adding to geared bank loans amid very tight fundamentals.