A Solid 16% Yielding Fixed Income Portfolio
But Lots Of Questions Around The Distribution
Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
This past week, I got an email from a subscriber:
“I wanted to see if you’d consider doing a profile on the Guggenheim Strategic Opportunities (GOF) closed-end fund when you do your Thursday high yield spotlight. Seems like a good fund with a long track record, but wanted to see if you had any insight to share with your subscribers.”
I do indeed, good reader! This is a fund I originally looked at way back in mid-2021, but obviously a lot has changed since then. Broadly invested across the fixed income arena, its distribution yield, which has consistently been in the double-digits, is now all the way up to 16%. That’s helped the fund consistently trade at a premium to its NAV, so relative value will be a primary consideration in deciding whether this would be the time to buy this fund, if at all.
Fund Background
GOF’s investment objective is to maximize total return through a combination of current income and capital appreciation. Its strategy uses quantitative and qualitative analysis to identify securities or spreads between securities that deviate from their perceived fair value and/or historical norms. It invests in a credit managed fixed-income portfolio with the ability to invest in alternative investments and equity strategies. It will typically, however, invest in a wide range of fixed income securities including, but not limited to, corporate bonds, loans and loan participations, structured finance investments, U.S. government and agency securities, preferred securities and convertible securities. The fund also uses leverage to maximize yield and total return potential.
I generally like all-in-one products like this because, if nothing else, they’re easier for investors. So many fixed income security types behave so differently that it’s easy to get confused about whether one is right for the moment at any given time. Funds, such as GOF, give you full fixed income exposure without the hassle of managing it yourself. The annualized portfolio turnover rate of 26% ensures that you’re not just buying a stagnant portfolio and the management team is looking to rotate in and out of opportunities occasionally. From a portfolio construction standpoint, I like how GOF is built overall, but it’s some other factors, such as cost and value, that raise some concerns.
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