JGH: Great Fund, But Time To Ring The Register?
Summary
- A general update of JGH since our initial article.
- Discussion of economic and market catalysts responsible for the fund's performance.
- Detailed discussion of portfolio changes over the last 12 months.
- Review of various performance metrics over the same time frames.
Just about a year ago I wrote in great detail about one of my favorite closed end funds, one which I have owned for a number of years. That fund is the Nuveen Global High Yield Fund (NYSE:JGH). You can read that article here, JGH: Global High Yield Diversification In A Box. In this article, I wanted to do a complete update and see if JGH still belongs in your portfolio.
What's New?
Over the last year a number of catalysts sparked the underlying performance of both the shareprice and the underlying NAV.
For one, the global economy has managed to eek out yet another year of gains and the Fed's rate hikes have convinced investors that everything is still okay in the high yield world.
Relating to closed end funds in particular, as the economy has managed to stay afloat over the last year, investors continued to search for higher yields. CEFs, and those funds that were trading at above average discounts benefited greatly. JGH was one of those funds.
Fund Updates
At the time of our initial article back on September 19th, 2016, the fund yielded a 9.54% distribution and traded at an 11.96% discount to NAV, net asset value. Today the fund is yielding 8.41% and trading at a much smaller 6.59% discount to NAV.
The chart below shows both the share price and NAV and their relationship. As we can clearly see, over the last 12 months both the share price and NAV went up and the discount to NAV has closed.
Source: CEF Connect
Looking deeper into the portfolio, we can see that since our last article, the corporate bond allocation has dropped by about 2% and shifted into preferred securities.
Source: Nuveen JGH Website
The portfolio is still very well diversified and the top 10 holdings make up less than 10% of the portfolio. Common household names like Valeant, Hertz, Citigroup and Bombardier are present.
Source: Nuveen JGH Website
Breaking it down to sectors, we can see more than 50% of the portfolio is in US HighYield credit. Preferreds and Covertibles make up about 12%, however you would have to look at individual holdings to determine their credit risk.
Source: Nuveen JGH Website
Looking at the portfolio overall we can see an effective duration of 3.53 and a leverage adjusted duration of 4.96. What this means is that for every 1% rise in rates, the underlying value would fall 3.53%, or 4.96% accounting for leverage.
Finally we can see the effective maturity of 6.29 years which let's us know the managers have positioned the fund in the intermediate range of the maturity scale.
Where I think this is important is when we start seeing defaults. The closer to maturity the loans are, obviously less default risk. The one metric that does not make sense however is the percentage of holdings that are classified as small cap. I am guessing it is based on the loan amount, rather then the actual underlying credit.
Source: Nuveen JGH Website
Performance Update
Since our previous article, the fund has performed exceptionally well. From the chart below we can see that JGH has returned 14.11% on a price per share basis and a total return of 21.92% once accounting for the distribution.
On a YTD basis the shares grew over 7% and investors realized a total return of nearly 12%.
Looking at JGH against various peers we can see it has continued to shine.
The closest comparison for JGH is the iShares High Yield ETF (HYG), which it outperformed by more than 14.5%. As a colleague of mine in the industry used to say, "here we are talking multiples."
The US Aggregate bond index (AGG) on the other hand almost broke even over the same time period, only with the help of the dividends.
Most pleasantly surprising perhaps is that JGH even outperformed the S&P 500 SPDR ETF (SPY).
JGH Total Return Price data by YCharts
The same trend continues even if we look at the YTD time frame.
JGH Total Return Price data by YCharts
Bottom Line
Over the last few years the fund has performed exceptionally well. It has beat both its peers and the markets as a whole. Yet... just like (NSL), which I spoke about in yesterday's article, I am going to suggest investors look for an exit point for a number of reasons.
First, just like NSL, any time discounts to NAV shrink significantly, I would take that as an opportunity to evaluate whether it is still the best value at the time. One beauty of the closed end fund space is that often times, fund sponsors will have multiple closed end funds investing in the same space with nearly identical investment policies. You may have the opportunity to own a fund employing a nearly identical strategy, at a deeper discount.
As per CEF Connect, JGH is currently trading at the smallest discount to NAV experienced over the last year. The average discount over the last 52 weeks has been 10.20%, and we are quite below that.
Next, I am seriously questioning the strength and power behind both the economy and the market rallies, but here I may be preaching to the choir.
Finally I am getting quite concerned with the "quality" of high yield bonds, a feeling further stirred in yesterdays Seeking Alpha alert, "High-yield covenant quality plummeted in June - Moody's"
Again, this has nothing to do with the management or the operations of the fund, but rather my own macro concerns combined with the pricing of where the fund has been bid up to.
I am a frugal investor especially when it comes to CEFs. I picked up JGH a number of years ago and it has not disappointed. Unfortunately, it is no longer a "deeply discounted" and "unloved" CEF. Combined with the macro views, I am seriously thinking about ringing that cash register. In the next few articles I will seek to identify some alternatives.
I hope this was helpful in your search for income. Questions? Let's keep the conversation going.
For a complete look at JGH, please take a look at my initial article on the fund, JGH: Global High Yield Diversification In A Box.
Looking for more income ideas? Check out my previous Closed End Fund and ETF articles.
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Analyst’s Disclosure: I am/we are long JGH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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