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.
The fixed income space has gotten increasingly complicated for investors. As inflation expectations have normalized, bond yields have come down accordingly. On the other hand, even though we’ve got a fair amount of evidence that the economy is slowing and the labor market is weakening, credit spreads have failed to budge. Quite simply, investors are pricing bonds as if there are no unusual risks in the markets right now. That makes the bond market a dangerous place to play. There are definitely opportunities in specific areas of the market, but this is a space where you want to consider being selective.
The BlackRock Income Trust (BKT), which focuses on agency mortgage-backed securities, is one of those funds that could be in a good position or a bad position. Home prices have been holding up despite rising mortgage rates and the yields on MBS have risen substantially. But the risk of a housing market bust, now that housing supply is back on the way up and threatens to normalize prices, is very real. I’ve warned of a potential credit event for some time, which I still feel is a possibility even though the timing has been off. The housing market could be both a catalyst for that and one of the areas of the economy most negatively impacted by it.
Fund Background
BKT’s investment objective is to manage a portfolio of high-quality securities to achieve both preservation of capital & high monthly income by investing at least 65% of its assets in mortgage-backed securities. It will invest at least 80% of assets in securities that are (i) issued or guaranteed by the U.S. government or one of its agencies or (ii) rated at the time of investment either AAA by S&P or Aaa by Moody’s. The fund also utilizes leverage in order to enhance yield and total return potential.
Keep reading with a 7-day free trial
Subscribe to The Lead-Lag Report to keep reading this post and get 7 days of free access to the full post archives.