HIX: Diverse Income CEF But Higher Interest Rates Limit Appeal

2025-05-14 09:52:17 ET

Summary

• Western Asset High Income Fund II (HIX) offers a high dividend yield of 14.3%, but its inconsistent earnings history raises concerns about dividend sustainability.
• HIX's performance is heavily influenced by the interest rate environment, with higher rates negatively impacting its price and NAV over the past five years.
• The fund's leverage strategy and significant exposure to below-investment-grade credit increase its risk, especially in a prolonged high-interest-rate environment.
• Despite trading at a larger discount to NAV, the fund's poor long-term performance and potential for further dividend cuts make it a less attractive investment.

Overview

Western Asset High Income Fund II ( HIX ) operates as a closed end fund that aims to provide attractive total returns from a diverse portfolio of credit investments. Credit investments can be an attractive way to offset the volatility of equities because of their underlying structure. Credit is interesting because the underlying borrowers don't necessarily need to thrive for funds like HIX to provide high income. As long as underlying borrowers continue to pay their debt obligations, HIX can continue to generate returns for shareholders. ...

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