BHK: Could Be Okay In A Recession, But Destructive Distributions Are A Problem

2025-03-27 11:41:10 ET

Summary

• The BlackRock Core Bond Trust offers a high yield of 8.34%, primarily investing in investment-grade bonds, making it attractive for income-seeking, risk-averse investors.
• Despite its high yield, the BHK closed-end fund has struggled with poor real returns over the past decade due to low yields and losses once rates started rising.
• It is uncertain whether or not the U.S. will enter a recession or not as "soft data" and "hard data" disagrees.
• This fund is better suited for short-term holdings to protect against recession risks rather than a long-term investment.
• The fund is currently trading at a premium, which is not justified given its failure to cover distributions and its historical valuation trends.

The BlackRock Core Bond Trust ( BHK ) is a closed-end fund, or CEF, that provides income-seeking investors with an option that they can use to achieve their goals of earning a high level of current income from the assets in their portfolios. Unlike many fixed-income funds, the BlackRock Core Bond Trust seeks to achieve its objectives by investing in a portfolio that primarily consists of investment-grade bonds as opposed to the junk bond portfolios that comprise many of the fixed-income closed-end funds that we have discussed in this column.

As everyone reading this is no doubt well aware, investment-grade bonds have significantly lower yields than most junk bonds or other fixed-income assets. We can see this quite easily by looking at the yields of the two major domestic investment-grade bond indices:

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