This 9% Yielder Offers Promise
But Do You Want To Be Overweighting Junk Bonds Right Now?
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.
For as much as I complain about how the market is mispricing the risk in junk bonds today, whether it’s due to rising corporate delinquencies, the refinancing cliff, higher interest rates or a credit bubble, it’s hard to ignore the fact that they just keep outperforming. Credit spreads are back to multi-year lows and the prospect of multiple rate cuts from the Fed this year has a lot of folks believing that conditions might even improve for these issuers before they get worse. I’m not one of them, but I think we do need to acknowledge that sentiment is what it is at the moment. In the short-term, maybe junk bonds do have some upside left.
Which leads me to the Pioneer Diversified High Income Trust (HNW). If you’re into some of the wilder high risk fixed income investments, this may be the fund for you! The different mix of credit types, use of leverage and willingness to dive deep into lower-rated debt makes this a real boom or bust proposition. If the market continues to discount the inherent risks in non-investment grade debt, this fund may do incredibly well. If conditions turn though…..
Fund Background
HNW will pursue a high level of current income, with the potential for capital appreciation as a secondary objective. It invests in a unique blend of higher yielding asset classes, including global high yield bonds, leveraged bank loans and event-linked bonds (cat bonds).
According to the fund’s website:
“The market prices of securities may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse economic, political, or regulatory conditions, recessions, inflation, changes in interest or currency rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues or adverse investor sentiment.”
HNW also utilizes leverage in order to enhance yield and total return potential.
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