RCL - DHF: Don't Be Misled By The Strong Recent Performance

2025-01-10 18:03:00 ET

Summary

• The BNY Mellon High Yield Strategies Fund boasts an 8.11% yield, which beats the fixed-income indices but is not impressive compared to peers.
• Despite a recent 11.16% share price increase, the DHF fund's net asset value only rose by 1.86%, raising concerns about its current valuation.
• The fund does have a bit more diversity than a typical junk bond fund, which could give it some advantages over a typical fund.
• The fund covers its distributions well but has a history of distribution cuts, making it less attractive in an inflationary environment.
• The fund's current 5.47% discount to net asset value is less attractive than its long-term average, indicating it may be overvalued.

The BNY Mellon High Yield Strategies Fund ( DHF ) is a closed-end fund, or CEF, that is designed for investors who are seeking to earn a very high level of income from the assets in their portfolios. The fund manages to do fairly well at this task, as it boasts an 8.11% yield at the current share price. As is the case with most closed-end funds, the one has a yield that is substantially higher than that of comparable market indices. We can see this clearly here:

Admittedly, the last entry in this chart is an index that tracks preferred stock prices and not bonds. Bonds and preferred stocks have some different characteristics, so some might say that this is not a good index to use for comparison. However, preferred stocks usually deliver a price performance that is more highly correlated with the bond market than any common equity market. In addition, many investors who are seeking to earn a high level of income will consider preferred stocks as an alternative to bond investments. Thus, the two are not completely dissimilar assets and the comparison seems appropriate. In any case, we can see that the BNY Mellon High Yield Strategies Fund boasts a significantly higher yield than investors would obtain by investing in any fixed-income index....

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