Nuveen Core Plus Impact Fund's Discount Narrows, But Appeal Wanes Amid Strong Results

Nuveen Core Plus Impact Fund (NPCT) is a closed-end fund providing exposure to fixed-income investments globally, with allocations to investment-grade and below-investment-grade debt. The fund has reported strong results, but the narrowing discount has reduced its appeal.

Nuveen Core Plus Impact Fund (NPCT), a closed-end fund providing exposure to fixed-income investments globally, has reported strong results. However, the narrowing discount has reduced its appeal, making it a less attractive option for investors.

NPCT offers significant diversification through its multi-sector income approach, allocating to both investment-grade and below-investment-grade debt, and exposure around the globe. The fund's performance has been driven by a material narrowing of its discount, which has helped the fund's overall returns. However, this narrowing discount has also taken away its appeal NPCT: Discount Narrows, Pushing Strong Results But Taking Away Its Appeal^[1].

The fund's discount narrowed from around 13.5% to closer to 5.5% since the last update. This narrowing discount helped the fund's total returns compete against the S&P 500 Index during a strong upward period. However, the fund's underlying portfolio lagged the fund's total share price results during this period NPCT: Discount Narrows, Pushing Strong Results But Taking Away Its Appeal^[1].

NPCT's high leverage of 35.68% and an average effective duration of 8.47 years make it interest rate sensitive. The fund's largest allocation is to investment-grade corporates, with a significant portion of its portfolio tilted toward higher-quality holdings. This tilt toward higher-quality holdings should mean fewer credit issues, relatively speaking, but the fund's high leverage amplifies both downside and upside moves, making it more volatile NPCT: Discount Narrows, Pushing Strong Results But Taking Away Its Appeal^[1].

The fund's distribution yield of 11.91% is still quite appealing for income-focused investors. However, the fund's net investment income (NII) coverage is only around 31%, which is low for a fixed-income CEF. The fund has had to rely on capital gains to keep the NAV flat, or investors could expect NAV erosion over the longer term NPCT: Discount Narrows, Pushing Strong Results But Taking Away Its Appeal^[1].

The Federal Reserve's recent cuts in its target rate should ease some of the borrowing costs for the fund. The latest annualized leverage costs for the end of August 2025 came in at 5.65%, down from the 6.18% seen previously. However, unless the distribution is reduced quite considerably, it will only be a minor lift in NII coverage NPCT: Discount Narrows, Pushing Strong Results But Taking Away Its Appeal^[1].

In conclusion, while NPCT has seen its share price and NAV stabilize for the last several years, the narrowing discount has reduced its appeal. The fund's high leverage and interest rate sensitivity make it more volatile, and its low NII coverage means it will have to rely on capital gains to keep the NAV flat. The Federal Reserve's recent rate cuts should ease some borrowing costs, but this may not be enough to significantly improve the fund's appeal.

References
NPCT: Discount Narrows, Pushing Strong Results But Taking Away Its Appeal^[1] https://seekingalpha.com/article/4829581-npct-discount-narrows-pushing-strong-results-but-taking-away-its-appeal