KIO - KIO: A Few Risks Emerging For This Dynamic Debt Fund (Rating Downgrade)

2024-04-22 17:25:15 ET

Summary

• The KKR Income Opportunities Fund is a closed-end fund that aims to provide income-focused investors with a high level of current income.
• The KIO closed-end fund invests in a mix of fixed-income securities, including leveraged loans and junk bonds, depending on market conditions.
• While the fund has outperformed its benchmark indices, its current yield is only average compared to its peers, and its high level of leverage poses some risks.
• The fund appears to be betting on interest rate cuts that are looking increasingly unlikely to happen.
• The fund's lower-than-average discount and outsized bet on junk bonds could expose it to near-term risks.

The KKR Income Opportunities Fund ( KIO ) is a closed-end fund, or CEF, that income-focused investors can purchase to achieve their goals. As is the case with most income-focused closed-end funds, this one seeks to satisfy its investors by investing in various fixed-income securities. The current monetary environment has allowed these securities to be far more attractive in terms of yield than they have been over most of the past twenty years. After all, even an ordinary money market fund is yielding more than 5% today.

The KKR Income Opportunities Fund naturally does much better than that, as its 10.95% current yield beats just about anything that can be seen in the market. However, its yield is only average relative to its peers. We can see that here:

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