JNK - ERH: Utilities Are Struggling But This CEF May Work As A Fixed-Income Alternative

2024-03-28 18:24:18 ET

Summary

• The Allspring Utilities and High Income Fund offers investors a high level of current income with exposure to the upside potential of common equity investments.
• The ERH closed-end fund's performance over the past three years has been disappointing, underperforming the global utilities index.
• The fund invests in a combination of utilities and junk bonds, with a focus on utility stocks. However, it has recently cut its distribution and has struggled to cover its distributions in the past.
• The fund appears to have covered its distributions paid so far in the current fiscal year, but it has not reported yet.
• The fund is trading with an enormous discount on net asset value, but the discount is probably justified given the fund's poor recent performance.

The Allspring Utilities and High Income Fund ( ERH ) is a closed-end fund, or CEF, that investors can employ to receive a high level of current income without having to sacrifice their exposure to the upside potential of a common equity investment. Admittedly, utilities have not been an especially good place to be over the past year as the sector has been at best flat over the past year. We can see this in this chart of the iShares U.S. Utilities ETF ( IDU ) and the iShares Global Utilities ETF ( JXI ):

This is obviously far worse than the gains that we have seen from just about every sector of the market. With that said, the utility sector does tend to boast yields that are above those of most other sectors, and this was sufficient to at least ensure that investors who held the sector for the entire year did manage to make money, albeit barely. The Allspring Utilities and High Income Fund is perhaps unique among utility closed-end funds though as it does not invest solely in the utility sector. This could help the fund out in certain market environments, although the shares are still down over the past year. The fund does boast an 8.11% yield that helps to offset its recent poor performance, however....

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