Monthly income investment offering a fixed yield of 11%

Monthly income investment offering a fixed yield of 11%

Fed up with interest rate fluctuations causing headaches? Look no further than the Franklin Limited Duration Income Trust (FTF)! This bad boy aims to provide a high yield while maintaining a low correlation to interest rates.

All About FTF

In the finance world, this fund focuses on high yield corporate bonds, floating rate corporate loans, and mortgage-backed securities, among other things. Established on 8/27/03, it's got a solid $1.045B in net assets and over 600 holdings. It typically trades around 170K shares daily, and its expense ratio is a not-so-tiny 3.92%, which breaks down to 2.30% for interest expenses - yikes! The team uses a hefty 31.98% leverage.

Geographic Exposure

The US takes the lead with a whopping 52.27% ownership, followed by Canada (2.75%) and France (1.17%), with other countries each under 1%.

Portfolio Allocation

Bank Loans dominate at 61.6%, followed by Corporate Bonds at 51%, Securitized at about 24%, Asset-backed at 12.4%, Agency Mortgaged-Backed at 10.4%, and various Government vehicles rounding things out.

Top 10 Positions

As of 5/31/25, FTF's top 10 holdings account for roughly 36% of its portfolio. Marketplace loans from Square Financial Services, a subsidiary of Block, make up a ~15% slice. You'll also find two GNMA and three FNMA holdings in the top 10.

Rating Wise

Approximately 55% of FTF's holdings were unrated as of June 30, 2025, with BB non-investment grade holdings at 16.84% and B non-investment grade holdings at 11.32%. Investment grade holdings add up to around 11.50%.

The average yield to maturity was 7.79%, with an average weighted maturity of 4.92 years and an effective duration of 1.52 years.

Dividends and Taxes

FTF pays out monthly distributions, yielding a whopping 11.62% at its 6/18/25 closing price of $6.35. However, its 5-year dividend growth rate is negative at 2.16%. In 2024, NII fell 1.8%, but Net Realized Gains improved from -$20.4M to -$8M. Unrealized Appreciation took a hit, falling $25M, from $27.3M in 2023 to $2.3M in 2024.

approximately 33% of 2025 distributions were estimated to come from Return of Capital, "ROC". ROC can offer you a tax deferral advantage, but it does decrease your tax basis, which will impact your tax liability if you sell your shares.

As of 4/30/25, ROC accounted for 33% of 2025 distributions, with NII covering the rest.

Performance

FTF has had its best market price gains in the past year at 13.51%, compared to its benchmark's 7.35%. The 1-year NAV gain was a more modest 6.6%. FTF outperformed its benchmark on both a price and NAV basis over the past 3 years, with a 3-year NAV gain of 6.21% compared to the benchmark's 5.50%.

FTF's 5.13% price return since inception narrowly outperformed the benchmark's 5.09%, while its NAV return was 4.97%.

FTF's market price return outperformed that of the Morningstar US CEF Limited Duration category by a wide margin in 2024 and 2020. NAV performance has generally been similar to the category's. However, FTF's price fell 20.5% in 2022, a rate-hike year.

Risks and Valuations

Rising interest rates will put pressure on FTF's price and portfolio value, as they did in 2022. Credit Risk arises if a borrower defaults on its bond payments or can't make timely payments, decreasing the related ratings within FTF's portfolio. Leverage Risk might increase losses in a down market, just as it amplifies gains in an up market.

Buying CEFs at deeper than historical discounts to NAV can be a useful strategy, due to mean reversion. As of June 20, 2025, FTF was selling at a 6.07% discount to NAV/share, closer to its 1-year 6.14% average but not as deep as its 3-year and 5-year averages of -9.81% and -7.4%, respectively.

Final Thoughts

Given its solid investment performance and defined risk profile, we rate FTF a Hold. We'll keep our eyes out for a deeper than average discount before investing in FTF. In the meantime, check out our Marketplace service, Hidden Dividend Stocks Plus, for more coverage on undercovered, undervalued income vehicles and special high-yield situations!

1. The Franklin Limited Duration Income Trust (FTF) is a business focused on high yield corporate bonds, banking investments, and securities, aiming to provide a high yield while maintaining low correlation to interest rates, particularly through the use of floating rate corporate loans and leverage.
2. Furthermore, personal-finance investors might find interest in FTF as it offers monthly investing opportunities, with a 33% dividend distribution estimated to come from Return of Capital (ROC), which could provide a tax deferral advantage.
3. In terms of government involvement, approximately 55% of FTF's holdings are unrated as of June 30, 2025, while BB non-investment grade holdings and B non-investment grade holdings account for 16.84% and 11.32%, respectively.
4. Technology also plays a role in FTF's top 10 holdings, as Marketplace loans from Square Financial Services, a subsidiary of Block, make up a significant portion of the portfolio (approximately 15%). Investing in FTF might provide exposure to this futuristic sector.

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