Why I Bought Corporate High Yield Fund This Morning (CEF: COY)

Today I purchased 2000 shares of closed-end fund Corporate High Yield Fund (COY) at $7.59. COY currently pays a monthly dividend of $0.059/share, equivalent to 8.9% annually.

I believe interest rate hikes are about to end -- my guess is another two rate hikes to 5.25%. The economy seems to be steadily improving, which should benefit closed-end bond funds that invest in low investment grade corporate bonds.

My target sell price is $7.80 in 1-3 months. If COY meets my target the return will be 3.5%-5%, not terribly exciting, but I believe it's very achievable and safe. If COY drops below $7.50, I will likely pick up additional shares.

I wrote this in a post about COY on December 19th 2005:

I’ve been watching COY, Corporate High Yield Fund, Inc. for over a year now and waiting for it to drop below $8. COY operates as a diversified, closed-end management investment company. COY currently pays a monthly dividend of $0.062, equivalent to 9.8% annually. The company was founded in 1993 and the stock price has rarely traded below $8. COY is currently trading less than $7.50. I expect the stock to drop a bit more before rebounding. I might pick up some shares of COY if the stock drops below $7.40. I expect the shares to rebound within 1-3 months and pass $8 again.

COY closed at my earlier target price of $8 on February 22nd, 2006.

Comments

[Internet2k4:]

Assuming Andy So is right in timing a junk bond revival, why this fund? Fully agree that the payout drop is a red flag. PCN yielding 8.2% has held up better in the adverse market and its MER is 1.1% v.s. 2.2% for COY. The difference from COY's 8.9% yield is less than that MER gap. Sometimes a NAV discount is a fire sale price for a fund that's burning down, and sometimes that premium is for higher octane.

2006 May 09 08:23 AM