HYG - HIO: Non-Leveraged High-Yield Focused CEF
2024-06-09 10:45:47 ET
Summary
- The Western Asset High Income Opportunity Fund (HIO) is an unleveraged option for high-yield exposure, currently trading at a discount.
- HIO's historical trading level suggests that waiting for a wider discount may be beneficial, which can especially happen during periods of greater market volatility.
- The fund's distribution yield is 11.30%, but investors should be aware of the fund's history of distribution cuts and a lack of coverage.
Written by Nick Ackerman, co-produced by Stanford Chemist.
The majority of closed-end funds operate by utilizing leverage in the form of borrowings, issuing debt instruments or preferred to enhance their potential returns. However, that comes with its own consequences as it amplifies volatility to the upside but also potentially to the downside. Further, as we are now in a higher rate environment, a large portion of the borrowings being utilized by CEFs are seeing their interest rates climb to 6%+. Along with the generally higher expense ratio, that can leave very little room to earn a spread above those expenses....
HIO: Non-Leveraged High-Yield Focused CEF