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In the current interest rate environment, it makes sense to diversify across different fixed income asset classes. Over the last few months, I’ve reviewed closed-end funds in several fixed income categories:
  • Municipal bond closed-end bond funds (e.g. NPM, NXR, MFL)
  • Build America bond fund (NBB)
  • Emerging market bond fund (MSD)
  • Preferred (JTP)
  • High yield (HSA)
In this article, I will be reviewing a high quality, investment grade bond fund.

The Alliance Bernstein Income Fund (ticker: ACG) was formed in 1987. It seeks high current income consistent with preservation of capital. The fund usually invests at least 65% of its assets in US Government Guaranteed debt. It may invest up to 35% of its net assets in other fixed income securities including corporate bonds and foreign government debt. The fund may use options, swaps, forwards and futures, and may employ leverage.

The funds investments are mostly denominated in U.S. currency. This is the security type breakdown as of March 31, 2011:

Security Type Breakdown

Governments- Treasuries
59.20%
Agencies
4.85%
Corporate- Investment grade
10.85%
Corporate- Non Investment Grade
7.92%
Mortgage Pass Thru’s
4.24%
Bank Loans
2.40%
Commercial Mortgage-Backed
2.36%
Quasi-Sovereigns
2.10%
Emerging Markets
2.06%
Inflation-linked
1.34%
Other
2.14%

ACG has a good long term NAV performance record. Over the last ten years, it has had only one losing year in 2008 when the net asset value fell -5.38%. Here is the total return NAV performance record for the last ten years:

2001
+3.00%
2002
+14.22%
2003
+17.90%
2004
+8.52%
2005
+8.34%
2006
+8.77%
2007
+12.31%
2008
-5.38%
2009
+19.89%
2010
+11.05%
YTD
+4.15%

Top 10 Country Breakdown (as of March 31, 2011)

United States
85.71%
Russia
4.00%
Brazil
2.51%
United Kingdom
0.85%
Indonesia
0.79%
Kazakhstan
0.55%
Australia
0.46%
Argentina
0.44%
Columbia
0.39%
South Africa
0.38%

Bond Rating Distribution

AAA
69.88%
A+
1.14%
A
3.30%
BBB
12.58%
BB
7.54%
B
3.05%
<=CCC
0.44%
Short Term
1.26%
NR
0.81%

Management
ACG is run by four portfolio managers:

  • Gershon Distenfeld, CFA, Director-High Yield. Joined Alliance Bernstein’s Fixed Income department in 1998 after working as an emerging market analyst at Lehman Brothers. Received a BS in Finance from Yeshiva University.
  • Paul DeNoon, Director-Emerging Markets. Joined Alliance Bernstein in 1992 after previous experience at Manufacturers Hanovers Trust and Lehman Brothers. Received a B.A. in Economics from Union College and an M.B.A. in Finance from New York University.
  • Douglas Peebles, CIO and Head of AllianceBernstein Fixed Income. Joined Alliance Bernstein in 1987 and has held a series of leadership positions in Fixed Income. Has a B.A. from Muhlenberg College and an MBA from Rutgers University.
  • Kewjin Yuoh, Director-Structured Assets. Began his career in the Mortgage sector with Sanford Bernstein in 1994. Also has experience managing institutional mortgage funds at Brundage, Story And Rose and Credit Suisse. Rejoined Alliance Bernstein in 2004. Has a BS in Operations Research and Industrial Engineering from Cornell University.

Here are some summary statistics on ACG:

Alliance Bernstein Income Fund (ACG)

  • Total Assets: 3.18 Billion Total Common assets: 2.16 Billion
  • Annual Distribution (Market) Rate= 6.23%
  • Last Regular Monthly Distribution= $0.04 (Annual= $0.48)
  • Fund Expense ratio: 0.60% Discount to NAV= -13.51%
  • Portfolio Turnover rate: 121%
  • Credit Rating: 70% AAA but some low rated credits as well.
  • Effective Duration: 6.14
  • Effective Leverage: 31.95%
  • Average Daily Volume (shares)= 654,000
  • Average Dollar Volume = $5.2 Million

ACG is currently selling at a discount to NAV of -13.51% compared to the 6 month average discount of -11.24%. The 1-Year Z-Statistic is -1.81. This means the current discount to net asset value is nearly two standard deviations below the mean.

ACG is a liquid stock and usually trades with a bid-asked spread of only one cent with decent size available on the bid and asked. ACG is an attractive purchase at current levels when the discount to NAV is 10% or higher.

Source: ACG: High Quality, Low Expense Bond Fund Selling at an Attractive Discount