DGI Adventure – 05-26-16 Closed End Fund Watch List – Part 2 of 3

Yesterday I posted part 1 of this watch list series. That list focused on “non high yield” bond funds…specifically closed end funds (CEFs). You might have already guessed that today’s list is looking at the “high yield” CEFs. You would have guessed correctly.

First some reference links:

I discussed why I’m looking at fixed income CEFs and the metrics I look at when analyzing them here.

The watchlist is published back at the mother ship and as a stand alone google sheet.

I used the Closed End Fund Association (CEFA) fund screener to filter out funds with expense ratios over 1.5%.

Portfolio is also published back at the mother ship. But as of this writing it is still showing the beneficiary IRA holdings as they were constituted at Raymond James. Those are in the process of being liquidated and transferred to an Interactive Brokers (IB) account, which is the main reason I’m spending so much time researching these fixed income funds.

Okay, ready? Let’s do it.

I previously posted this table summarizing the fixed income investments I held in the old Raymond James account. Here it is again:


As I look for closed end replacements for these holdings, I’m trying to be cognizant of my previous mix of average credit quality and duration risk. The funds that CEFA classifies as “high yield” tend to have average credit quality in the B range. So I’m looking at these funds to replace my WHIAX and IHIYX holdings.

A few general comments before I dive into this list:

There are not many funds with lower average durations than WHIAX and IHIYX, but there are a few and those are what I’m focused on right now. Sure, I could get a lot of yield in exchange for adding duration risk, but why? The funds with comparable metrics provide me comparable or better yield (IHIYX kind of sucks doesn’t it?), so I’m going to focus on them.

Okay. Enough chit chat…let’s get to the watchlist:

CEF Watch List Part 2 of 3: High Yield Bond Funds

1. Credit Suisse Asset Management Income Fund (CIK)

Zero leverage. Low expense ratio (0.66%). This fund is mostly invested in corporate junk debt from the United States. I took a quick glance at the annual report, and was surprised to see a relatively mild exposure to energy/oil & gas. Seems like a pretty reasonable and diversified replacement for either of the high yield funds I had before. The duration risk and credit quality are pretty much the same as WHIAX, but with a higher yield and a lower expense ratio. Yes please.

CEFA summary page can be found here.

2. Western Asset High Yield Defined Opportunity Fund, Inc (HYI)

All in all pretty similar to CIK, but with maybe a little bit more international exposure…CIK had 80% US based assets, while HYI holds 74%. Kind of a big jump in expense ratio to 0.88%, but still cheaper than what I had before, and more in line with the other funds on this list anyway. This is a relatively new fund (started in 2010). Minimal track record makes me a little nervous.

CEFA summary page can be found here.

Fund fact sheet can be found here.

3. BlackRock Limited Duration Income Trust (BLW)

Leverage adjusted average duration is 3.45 years which is right between WHIAX and IHIYX. I feel like one needs to tread carefully when using leverage to invest in junk debt. The fund’s inception date is only 2003, so they have more history than HYI for example, but not like a ton (CIK was started in 1987). A much higher percentage of assets in BLW are securitized…specifically 14.58% in asset backed securities. The average credit quality is higher than most of these high yield funds (BB-), so maybe it’s better to compare this with IDITX?

CEFA summary page can be found here.

Fund fact sheet can be found here.

4. BlackRock Debt Strategies Fund, Inc. (DSU)

This looks a lot like CIK just with leverage (27.16%) and a higher expense ratio (1.24%). Pretty much just a bunch of US corporate junk debt. This is one of those funds with an absurdly low average duration (0.97)…like so low, I wonder what shenanigans they’re using to get it there. They’ve been doing those shenanigans since 1997 though, so they must be working. Distribution yield would probably be better if it weren’t for that expense ratio…I like the B+ average credit rating.

CEFA summary page can be found here.

Fund fact sheet can be found here.

5. Wells Fargo Income Opportunities Fund (EAD)

This is the only leveraged high yield fund with an expense ratio below 1% (0.96%). I don’t like the longer average duration (5.56 years). Even without adjusting for leverage the duration is 4.00 years. That’s quite a bit longer than anything I’ve owned before. The distribution yield is very tempting though.

CEFA summary page can be found here.

Fund fact sheet is MIA. Can’t seem to find this fund on Wells Fargo’s website.


Doesn’t feel like this watch list has as many good options as the first part of the series does it? Should be able to get some pretty decent yields though…without altering my risk profile too drastically.

Next up: Watch List Part 3 of 3 – ETF Bond Funds

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