This report compares two leveraged closed-end funds that pay out attractive high income to shareholders by investing in global fixed income securities. Both funds are relatively well managed, but there are significant differences in their investment strategy, expenses, portfolio composition and valuation.
A Global Bond CEF to Consider
MFS Multi Market Income Trust
Ticker: (MMT)
Total Net Assets: $677 Million
Total Common Assets: $577 Million
Baseline Expense ratio= 0.91%
Leverage: 14.8%
Discount= -4.71%
Annual Distribution Rate (market price) = 6.84%
Portfolio Structure
| High Yield Corporates | 57% |
| Emerging Markets Debt | 26% |
| High Grade Corporates | 16% |
| Non-US Sovereigns | 9% |
| Commercial Mortgage Backed | 4% |
| Other | 2% |
| Cash / Other assets | -5% (short) |
| US Treasuries | -9% (short) |
Investment Objective: MMT is a multi-sector CEF seeking high current income and may also consider capital appreciation.
Credit Quality (as of 1/31/2012)
| US Government | 2.6% |
| Federal Agencies | 1.5% |
| AAA | 5.61% |
| AA | 3.36% |
| A | 7.29 |
| BBB | 27.35% |
| BB | 26.84% |
| B | 30.71% |
| CCC and below | 9.68% |
| Other not rated | -10.72% (futures) |
Investment Performance NAV Return as of 3/12/2012)
YTD +5.64%
1-Year +8.41%
3-Year +20.03% annualized
5-Year +10.05% annualized
10-Year +8.97% annualized
A Global Bond CEF to Avoid
Aberdeen Global Income Fund, Inc.
Ticker: (FCO)
Total Net Assets: $163 Million
Total Common Assets: $123 Million
Leverage: 24.53%
Expense Ratio= 1.68%
Premium= +3.01%
Annual Distribution Rate (market price) = 5.98%
Portfolio Sector Breakdown (1/31/2012)
| Government | 70.5% |
| Corporate | 20.6% |
| State | 6.9% |
| Cash | 2.0% |
Geographic Breakdown (1/31/2012)
| Australia | 21.4% |
| New Zealand | 19.2% |
| Emerging Markets | 18.2% |
| United Kingdom | 14.1% |
| Canada | 12.1% |
| Europe (ex UK) | 9.1% |
| Asia | 3.6% |
| US | 2.3% |
Currency Breakdown (1/31/2012)
| US Dollar | 34.6% |
| Australian Dollar | 23.8% |
| New Zealand Dollar | 15.1% |
| Canadian Dollar | 11.6% |
| British Pound | 9.4% |
| Emerging Markets | 3.7% |
| Euro | 1.1% |
| Asia | 0.7% |
Investment Objective: FCO seeks to provide a high current income by investing in fixed income securities, while also considering capital appreciation.
Portfolio Credit Quality
| AAA | 43.2% |
| AA | 20.7% |
| A | 8.8% |
| BBB | 12.0% |
| BB | 8.8% |
| B | 6.5% |
Investment Performance: NAV Return as of 3/12/2012)
YTD +3.93%
1-Year +14.67%
3-Year +23.31% annualized
5-Year +8.45% annualized
10-Year +11.30% annualized
Here are some key comparisons between MMT and FCO:
1) MMT has a much lower expense ratio.
2) MMT is largely invested in US dollars, while FCO has significant global currency exposure- mainly in Australian $, New Zealand $ and Canadian $.
3) FCO is invested mainly in higher rated investment grade government issues, while MMT has more exposure to high yield and corporate securities.
4) MMT is trading at a discount to NAV, while FCO is trading at a premium.
In some ways, these two funds complement each other quite well. They cover different segments of the global bond market and they each have pretty good long term performance. The main problem I have with FCO is the high expense ratio and premium over net asset value. I would consider buying FCO when it trades at a discount of 5% or higher. This occurred twice last year in August and again in October.
Disclosure: I am long MMT.
