HFRO's $100M Gambit: A High-Stakes Bet to Close a Stubborn 43% Discount

DALLAS, TX – June 09, 2026 – The Highland Opportunities and Income Fund (NYSE: HFRO) has launched an aggressive new offensive against a problem that has plagued its shareholders: a vast and stubborn chasm between its market price and the underlying value of its assets. The fund announced today that its Board of Trustees has authorized a new $100 million share repurchase program, signaling a determined effort to close a discount to its net asset value (NAV) that currently sits at a staggering 43%.

In a move designed to broadcast its seriousness, the fund, managed by NexPoint Asset Management, L.P., stated its intention to deploy approximately $20 million of the total authorization “as soon as practicable.” This two-year program directly succeeds a similar $100 million initiative that expired in 2025, raising the stakes on a strategy that has so far delivered mixed results.

“This new repurchase program, and our commitment to deploy an initial $20 million as promptly as practicable, underscores our strong conviction that HFRO’s common shares represent compelling value at current prices,” said Scott Johnson, NexPoint managing director and the Fund’s portfolio manager. He framed the buyback as an “integral component of our broader strategy to narrow the discount and create long-term value for all shareholders.”

A Familiar Playbook with Higher Stakes

For investors who have followed HFRO’s journey, this move is a case of déjà vu with a heightened sense of urgency. The fund’s previous $100 million repurchase program, which ran from mid-2023 through 2025, was also launched with the explicit goal of enhancing shareholder value and closing the NAV gap. An analysis of that period reveals a challenging path.

Despite the buyback being active, HFRO’s market price plummeted by nearly 27% in the twelve months ending December 31, 2024, while its NAV also eroded by 2.36%. The following year, 2025, brought a sharp reversal in market sentiment, with the share price surging over 25%. However, the fund’s NAV continued its slow decline, shrinking by another 1.31%. This history suggests that while a buyback can provide a floor for the stock and fuel price rallies, it has not been a silver bullet for correcting the fundamental disconnect with the fund's underlying asset value, which has trended from over $12 per share in late 2024 to below $11.50 a year later.

The renewal of the program for another $100 million represents a doubling down on the conviction that the market is mispricing HFRO’s portfolio. Management is betting that this renewed capital injection can succeed where the last one only partially delivered, providing sustained support and finally convincing investors of the fund’s intrinsic worth.

The Shadow of Activism and a 43% Chasm

The timing of this announcement is critical, coming as external pressure mounts. The fund’s deep discount has not gone unnoticed by activist investors, who specialize in identifying and unlocking value in such situations. Saba Capital, a prominent activist in the closed-end fund (CEF) space, has been steadily increasing its position in HFRO. Recent filings show Saba’s stake has crossed a significant threshold, reaching 10.47% as of June 4, 2026.

The presence of such a significant and vocal shareholder often acts as a powerful catalyst for management and boards to take decisive action. While the new buyback aligns with the kind of measures activists typically demand, it also puts NexPoint’s strategy under an even brighter spotlight. The fund’s performance will now be judged not only by its long-term retail investors but also by a major stakeholder with a clear agenda to close the discount.

The sheer scale of that discount illustrates the opportunity and the challenge. With a recent NAV of $11.85 per share and a market price of just $6.70, every share the fund repurchases is effectively buying back its own assets for about 57 cents on the dollar. This is immediately accretive to the NAV for the remaining shareholders, making the buyback one of the most compelling investments the fund can make—provided the NAV itself remains stable or grows.

Under the Hood: Real Estate Woes and Regulatory Hurdles

At the heart of HFRO’s valuation struggle is its portfolio composition. The fund has a heavy concentration in commercial real estate, which accounted for roughly 71% of its long assets at the end of 2025. This sector has faced significant headwinds, from higher interest rates impacting property values and financing costs to shifting post-pandemic work and retail habits. The market’s broad pessimism toward commercial real estate is arguably the primary driver of HFRO’s punishing discount.

NexPoint’s buyback is an implicit statement that it believes the market is overly pessimistic about its real estate holdings. However, executing this vision is not as simple as deploying $100 million overnight. The program must operate within the strict confines of Rule 10b-18 of the Securities Exchange Act. This “safe harbor” rule prevents an issuer from being accused of market manipulation but imposes crucial limitations.

Most notably, the fund’s daily repurchase volume generally cannot exceed 25% of its average daily trading volume over the prior four weeks. This regulatory speed limit means the pace of the buyback is directly tied to the stock’s liquidity. The initial $20 million deployment, while substantial, will still be a methodical process executed over weeks or months, not days. This methodical execution is further subject to market conditions, cash availability, and debt covenants, as outlined in the fund’s announcement.

HFRO's management has emphasized that the buyback is just one element of a wider strategy that includes ongoing portfolio optimization and enhanced investor communications. This multi-pronged approach is crucial, as the previous program demonstrated that share repurchases alone cannot defy a challenging sector narrative or a declining NAV trend indefinitely. The ultimate success of this $100 million gambit will depend not only on the buyback’s execution but also on a potential recovery in the commercial real estate market and management’s ability to navigate the fund's assets through a complex economic environment.