EHI - EHI: Global Portfolio Should Outperform But This Fund Is A Long-Term Play

2024-01-25 06:23:53 ET

Summary

• The Western Asset Global High Income Fund offers a high current yield of 11.26%, significantly higher than most other fixed-income funds.
• The fund's performance over the past five years has been disappointing, with shares down 21.19% compared to benchmark indices.
• The fund's strategy of investing in global fixed-income securities and its use of leverage make it attractive for income-focused investors seeking diversification.
• Emerging market bonds should outperform domestic bonds on a total return basis, as high Federal deficits will necessitate bonds having minimal yields.
• This fund is a ten-year play, not a ten-month play.

The Western Asset Global High Income Fund ( EHI ) is a closed-end fund that income-focused investors can employ to achieve their goals of earning a steady income from their portfolios to use to pay their bills or finance their lifestyles. The fund certainly manages to do a reasonably good job at achieving this goal, as its 11.26% current yield is significantly higher than most other funds that invest in fixed-income securities today. In fact, with the notable exception of a few other Western Asset funds (see here ), the only closed-end funds that have comparable yields are ones that are distributing more than their investment portfolio actually makes or are investing primarily in leveraged loans. Obviously, there are problems in distributing more than the fund's portfolio actually earns because that is not sustainable over an extended period. The leveraged loan funds will have to cut their distributions as soon as the Federal Reserve starts reducing interest rates. The fund's high yield therefore will undoubtedly attract some interest, but we also want to investigate it in order to determine how well it can sustain the payout.

The recent performance of the Western Asset Global High Income Fund could worry some potential investors, however. Over the past five years, shares of the fund are down 21.19%. This is far worse than the 7.74% decline of the Bloomberg U.S. Aggregate Bond Index ( AGG ) as well as the 17.99% decline of the JPMorgan Emerging Markets Bond Index ( EMB ):

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