First Trust Strategic High Income II: Ample Time To Sit And Wait

Jan.12.12 | About: First Trust (FHY)

First Trust Strategic High Income II is traded on the New York Stock Exchange under the symbol FHY. First Trust Advisors is the investment advisor with the sub-advisor being Brookfield Investment Management. The fund was launched on March 28, 2006. During its last fiscal year, ending October 31, 2011, it did very well and as a result the discount has narrowed to 5.90% as of January 10, 2012.

Previously, the discount had been in excess of 10% and even hitting 15%. It is a typical fund for high yield investing and has decent management. I simply believe that the discount has narrowed too much because of its performance last year. I would wait for the discount to again increase.

Performance statistics for last fiscal year, 3 years and inception, are as follows:

Net Asset Value 13.60% (10.80%) (8.14%)
Market value 11.64% (13.32%) (10.64%)
Barclays B A High Yield Index 5.36% 8.79% 8.79%
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As of October 31, 2011, the fund's capital structure was as follows:

Total Investments (136.70%) $179,242,571
Outstanding Loans (41.50%) ($54,400,000)
Net Assets $131,109,446
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Last fiscal year's ratios were as follows:

Expenses to net Assets 2.35%
Expenses, less interest expense 1.93%
Net investment income 9.65%
Turnover 49%
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Asset classification was as follows:

Corporate bonds 73.4%
Commercial mortgage backed securities 10.2%
Residential mortgage backed securities 9.2%
Foreign corporate bonds 3.6%
Manufactured housing loans 3.3%
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Credit quality was disbursed but primarily running from BB to B-, roughly as follows:

AAA 7.3%
BB+ 6.9%
BB 7.7%
BB- 15.0%
B+ 12.5%
B 15.0%
B- 14.2%
CCC+ 7.9%
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Its tax position reflects years of poor performance and there is a substantial tax loss carry forward, as follows:

Accumulated net investment income $1,890,330
Accumulated net losses ($79,567,755)
Net unrealized appreciation $2,228,744
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The portfolio is well diversified and is typical of most high yield funds. I would only invest when the discount increased to the 15% level. There is ample time to sit and wait.

Disclosure: I am long FHY.