As I write this, the S&P 500 is sitting on a 28% total return for 2024. And of course, that could shoot even higher if we get the traditional Santa Claus rally.
HIO is a well-diversified fixed income CEF with over 250 holdings, mainly in U.S. high-yield bonds, and minimal currency risk. The fund has shown robust returns, outperforming unleveraged peers, but lags over a longer time frame and has wider drawdowns. Current tight credit spreads suggest caution; consider lightening exposure and re-entering after a 10% price drop.
The Western Asset High Income Opportunity Fund offers a high yield of 10.76%, outperforming peers but with potential risks due to inflation. The fund primarily invests in junk bonds, but has the potential to invest in common stocks. It is not currently exercising this option. Bonds may not provide sufficient protection against a resurgence of inflation, which is quite possible once the Fed cuts rates.
Think back just a couple weeks: The “yen carry trade” had investors running scared, and we had a terrific opportunity to buy stocks—better still our favorite income plays on stocks: closed-end funds (CEFs) yielding 8%+.
The Western Asset High Income Opportunity Fund (HIO) is an unleveraged option for high-yield exposure, currently trading at a discount. HIO's historical trading level suggests that waiting for a wider discount may be beneficial, which can especially happen during periods of greater market volatility. The fund's distribution yield is 11.30%, but investors should be aware of the fund's history of distribution cuts and a lack of coverage.
HIO: Unlevered Junk Bond Fund Paying More Than It Earns.