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

| About: First Trust (FHY)
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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%

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

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%

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%

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%

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

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.