KIO - KIO: Time To Lighten Up On CCC Exposure (Rating Downgrade)

2024-02-07 05:45:05 ET

Summary

• KKR Income Opportunities is a high beta fixed income CEF focused on U.S. high yield with a heavy CCC exposure.
• The fund's high credit risk and tight credit spreads suggest a risk-off event could result in lower prices.
• Active portfolio management is recommended for high beta names like KIO, with a suggestion to reduce exposure in the current market environment.
• The fund has a 'CCC', 'CCC+' and 'Not Rated' allocation exceeding 44% of the portfolio composition.
• With the market priced for a perfect soft landing, risks are now skewed towards lower price action during a risk-off event.

Thesis

When credit spreads are tight and the equity market displays exuberance , a prudent retail investor needs to lighten up on risky exposure, not FOMO in additional risk. Everything seems to be priced for perfection these days, with an ' immaculate disinflation ' in the cards, and a soft landing as the base case for most economists on Wall Street. What if things end up different?...

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