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 high yield fixed income market looks like it’s getting slowly more dangerous here, although you wouldn’t know that judging by investor behavior. Despite growing credit risks, banks plagued by troubled balance sheets and a broadly slowing economy, high yield spreads remain near historic lows. Investors simply aren’t pricing in the appropriate risks to low-grade bonds and loans as they should be. That makes now a particularly challenging time to be reaching for yield, especially when essentially risk-free 5% yields are available in Treasury bills.
On the surface, that might make the KKR Income Opportunities Fund (KIO) look like a less than ideal choice for income seekers. Its credit profile is comparatively poor and it uses a relatively high degree of leverage in the process. But it’s also done one thing that many CEFs fail to do - use that leverage to enhance risk-adjusted returns. That alone makes it worthy of a longer look even if we’re headed into a potentially challenging environment, but we also have to make sure that this isn’t a case of the right fund at the wrong time.
Fund Background
KIO’s primary investment objective is to seek a high level of current income with a secondary objective of capital appreciation. It does this by implementing an opportunistic strategy investing in high conviction leveraged loans, high yield bonds and structured credit with a flexible mandate designed to take advantage of market dislocations. It 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.