BNDW - EHI: Narrowing Junk Bond Spreads Could Prove Problematic

2024-12-30 11:21:46 ET

Summary

• Western Asset Global High Income Fund offers a high 12.80% yield, higher than both domestic and international fixed-income indices and its peers.
• The EHI closed-end fund's high yield may signal market doubts about its distribution sustainability, necessitating a review of its financial health and distribution coverage.
• The fund's portfolio is heavily weighted towards junk bonds, which have outperformed investment-grade bonds recently but may face valuation challenges.
• The fund covered its distribution in the most recent fiscal year, but it appears to have struggled over the past six months.
• The fund's current valuation is in line with its historical average, but it is pricier than many peers.

The Western Asset Global High Income Fund ( EHI ) is a closed-end fund, or CEF, that income-focused investors may wish to consider as a means of achieving their goals. The fund certainly does quite well at this task, as its current 12.80% yield is significantly higher than that of the domestic or international fixed-income indices. We can see that here:

Thus, we can clearly see that an investment in the Western Asset Global High Income Fund will provide investors with a substantially higher level of income than would be provided by an investment in a fixed-income index fund. This is not exactly surprising, as most closed-end funds can provide a higher level of income than index funds tracking similar assets. This is partly because these funds use leverage to boost their effective asset yields, and partly because they can pay out capital gains to their investors. We will discuss both of these things later in this article. For now, though, it is important to keep in mind that this fund will provide a significantly higher level of income than would be obtained from any ordinary fixed-income fund....

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