HIO: Junk Bond Focus Better Than Floaters For Rate Cuts

2025-03-22 06:12:40 ET

Summary

• The Western Asset High Income Opportunity Fund offers a competitive 10.52% yield, outperforming major fixed-income indices and appealing to income-focused investors.
• Despite problems in the bond market, the fund's performance has been strong, with a 7.93% total return over the past six months.
• The fund is focused on investing in junk bonds instead of floating-rate securities, which is a better place to be in the current rate environment.
• The fund's net asset value has declined recently, indicating potential challenges ahead with maintaining its distribution.
• Trading at a 0.73% discount to NAV, the fund appears expensive compared to its historical average and peers, suggesting waiting for a better entry point.

The Western Asset High Income Opportunity Fund (HIO) is a closed-end fund that provides a method through which investors in search of income can achieve their goals. The fund does reasonably well in this task, as its 10.52% current yield is significantly higher than any of the major domestic or international fixed-income indices. We can see this by taking a look at the yields of the exchange-traded funds that track the major fixed-income indices:

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