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Private investor interested in undervalued stocks, ETFs, and bonds.
  • One year later: high-yield bond fund investment recap 0 comments
    Oct 10, 2010 1:10 AM

    HSA and HMH are diversified closed-end bond funds managed by Brookfield Investment Management. 

    On 9.22.2009, I went long HSA @ 4.93 per share cost.  A month later, I established a similar position in HMH @ 4.63.  With dividend reinvestment, I have an unrealized 22% and 19% gain, respectively, in HSA and HMH.  What's interesting is that on 9.22.2009, I established a positon in SPY, a S&P 500 spider.  With dividend reinvestment, that position is only up 10% even with the S&P's rally this past month.  HSA and HMH have clearly outperformed the broader market over the past 12 months.


    I will highlight why HSA/HMH were attractive at the time, and continue to be so today.

    1.  diversified holdings with well known companies

    Hold bonds in all sectors of the market, e.g. energy, consumer staples, etc.

    HSA/HMH is comprised of bonds from companies such as:
    • Alcoa
    • Rogers Communications
    • Domtar Corp
    • Bombardier
    • Levi Strauss & Co
    • Chesapeake Energy Corp
    2.  expense ratio worth the cost

    Purchasing bonds as a private investor is not always easy.  One, we don't have access to all types of bonds via standard brokerage accounts (e.g. Schwab).  Two, some of these bond deals were done via private transactions.  

    Also, if I were to attempting to create a diversified portfolio of individual bonds the cost of being each bond would most likely be well above the small expense ratio paid to Brookfield.

    3.  HSA,HMH trade below NAV

    HSA and HMH trade at roughly a 10% discount to NAV.  Buying the stock today is analogous to buying these bonds at 90 cents on the dollar.  

    4.  Nice dividends

    Both of these stocks yield close to 9%.  With dividend reinvestment, I have increased substantially to the number of shares owned, and am continually purchasing below NAV.   Both recipes for long-term success.


    I remain bullish on my HMH/HSA holdings.   I look forward to updating my position in the fall of 2011.

    Disclosure: long HMH HSA
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