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Managed High Yield Plus (NYSE:HYF) is a closed end fund or "CEF" that primarily invests in high-yielding bonds. Back in May, this fund which is professionally managed by UBS (NYSE:UBS), was trading for $2.20 but is now trading for around $2. This appears to be a significant buying opportunity because it has a short average duration and a dividend yield that is about 9.4%.


(Click to enlarge)

As the chart above shows, this fund is now trading at the low end of the recent range. It also shows that the share price has stabilized and even started to rebound a little. The 200-day moving average is around $2.05 per share (as indicated by the light brown trend line), and I believe the share price will rebound back over that level shortly since it has been a key support level for the past several months. Another reason it could be poised to rebound back over $2.05 is because the net asset value is $2.18 per share, as of September 10, 2013.

This CEF has around 350 holdings which indicates it is well diversified. This lowers risks for investors. Another potential downside for bond investors is duration risk, however, this fund has an average duration of just about 5.5 years which means duration risks are very limited. This is one reason why this fund does not deserve to be part of the recent sell-off in many bond assets. Another potential downside for investors in high yield or "junk bond" funds includes the risks of a recession. However, with the global economy showing signs of growth, the risks of recession seems limited at this time.

Historical data also indicates that this fund is too cheap at current prices and could be poised for a rebound. For example, in the past 12 months, this fund has sold for a small discount (of about 5%) to net asset value. However, it now trades for a discount of around 11.5% to net asset value. This means that investors who buy now could be poised to see capital gains of about 6.5% (if it trades back at historical averages) and get paid a generous monthly dividend while waiting for the rebound. This fund pays a 1.5 cent per share dividend each month and the next payment is coming up soon. The dividend is payable on September 30, 2013 to shareholders of record as of September 19, 2013. The ex-dividend date is September 17, 2013.

This CEF also looks very attractive and undervalued when compared to the SPDR Barclays Capital High Yield Bond (NYSEARCA:JNK), which is an exchange traded fund or "ETF". For the SPDR Barclays Capital High Yield Bond ETF, the average maturity is about 6.82 years and it pays a monthly dividend of about 20 cents per share which provides a yield of 6.2%. With a shorter average duration and a much higher yield of 9.4%, the Managed High Yield Plus Fund is a great option to consider. Over time, the difference of having money compound at 9.4% versus just 6.2% becomes very substantial and that is why investors should consider this bargain-priced CEF while it still trades far below net asset value.

Here are some key points for HYF:

  • Current share price: $1.94
  • The 52 week range is $1.87 to $2.29
  • Earnings estimates for 2013: not applicable
  • Earnings estimates for 2014: not applicable
  • Annual dividend: 18 cents per share (or 1.5 cents per month), which yields 9.4%

Here are some key points for JNK:

  • Current share price: $39.58
  • The 52 week range is $38.21 to $41.95
  • Earnings estimates for 2013: not applicable
  • Earnings estimates for 2014: not applicable
  • Annual dividend: about $2.40 or (20 cents monthly) per share which yields 6.2%

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Source: This Undervalued $2 CEF Has Significant Rebound Potential And Yields 9.4%