2023-04-14 02:05:13 ET
Summary
- Western Asset Global High Income Fund is a fixed-income closed-end fund.
- The vehicle has a global mandate and focuses on both investment grade (IG) bonds as well as high yield (HY) debentures. The fund's current portfolio has roughly 40% IG bonds.
- The fund is almost entirely a hard currency fund (USD based), thus it does not really take any FX risk (97.5% dollar composition in the collateral).
- The CEF is currently trading with a very wide discount to the net asset value of -7%, towards the bottom of its historic range.
Thesis
Western Asset Global High Income Fund ( EHI ) is a fixed income closed end fund. As per its literature, the fund:
Provides a global, leveraged portfolio of investment grade, below investment grade and emerging market fixed income securities. Seeks high current income, with a secondary objective of total return. Emphasizes team management and extensive credit research expertise to identify attractively priced securities
The fund holds a global portfolio of corporate and sovereign bonds, with a rough 40% IG / 60% HY split. While the vehicle falls in the U.S. High Yield benchmark category, it has a global focus, containing both sovereign as well as corporate credits from other jurisdiction. The fund is almost entirely a hard currency fund (USD based), thus it does not really take any FX risk.
The vehicle mainly takes rates and credit spread risk, but with a high portfolio turnover this is a very actively traded fund. The CEF benchmarks well against 'golden standards' in the space, namely CIK from Credit Suisse and PFN from PIMCO.
The fund's only drawback in today's environment is its very high leverage ratio of 37%, which serves to amplify any down move. We have seen many HY CEFs actually decrease their leverage ratios lately, notably the PIMCO funds. Expect this name to suffer a larger correction during the next market risk-off than its peers in the space.
Analytics
- AUM: $0.15 billion.
- Sharpe Ratio: 0.2 (3Y).
- Std. Deviation: 13 (3Y).
- Yield: 11%
- Premium/Discount to NAV: -7%
- Z-Stat: 0.12
- Leverage Ratio: 37%
- Composition: Global High Yield
- Duration: 6.8 years
EHI Performance
The fund matches the total return exhibited by the golden standards in the U.S. HY CEF space:
We can see that all funds utilized in the cohort have slightly negative total return figures on a 1-year lookback period.
Long term, the performance profile is quite similar:
CIK is the outlier here with a better performance, while the rest of the cohort posts total returns in the low teens.
EHI Holdings
The fund holds a global portfolio of corporate and sovereign bonds, with a rough 40% IG / 60% HY split:
The differentiator here versus the typical U.S. centric HY bond funds is the fact that EHI has the ability to hold global credit, rather than just U.S. The geographical split sees only a 54% U.S. allocation, with the rest being composed of Mexico, UK, Italy and other jurisdictions:
There is a significant trading component to this fund, with the reported portfolio turnover at 50% as per Morningstar. The manager tends to take views on names as arbitrage opportunities appear, and trade them as such.
The fund has a high sectoral allocation to Energy, which makes up 19% of the portfolio as an industry. Energy is followed by Consumer Cyclicals and EM Sovereign debt.
EHI Premium/Discount to NAV
The fund is currently trading with a discount to net asset value:
Historically the fund has traded in a -10% to flat discount to net asset value. The past year has seen the vehicle test both ends of the range, with a -10% discount achieved during the July and October sell-offs, while recently the fund was flat to NAV.
Distribution Coverage
The fund has a fully covered distribution rate:
The fund does a good job of sourcing good credits and also trading its portfolio. Given the turnover seen in the holdings in the past year we would say that EHI falls in the active fund category.
Conclusion
EHI is a closed end fund focused on global fixed income. The vehicle is overweight U.S. credits and currently sports a rough 40% investment grade / 60% high yield bonds split. The fund is very active, with a high portfolio turnover. Its historical performance benchmarks very well with some of the best U.S. HY names, and its analytics are robust. The fund is currently fully covering its distribution, although some of that income comes from its savvy trading activity. The CEF is now trading with a -7% discount to NAV, which is closing in the bottom of its trading range for the market price versus NAV. The only drawback here is the very high leverage ratio for the CEF, which currently stands at 37%. A high leverage ratio will magnify any potential down move in the vehicle. EHI is not a well-known, well advertised fund, and it represents a nice surprise in terms of performance, yield coverage and build. A true hidden gem.
For further details see:
EHI: Hidden Gem, 11% Yield