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ISD: Attractive 8%+ Yielding CEF


  • ISD is yielding 8.54%, after several boosts over the last year.
  • The latest discount of 8.61% is much less than its 1-year average of -11.56%, this could be explained by a recovering NAV.
  • The discount contraction could also be explained by a changing mandate the fund went through at the beginning of 2019.
  • Looking for a portfolio of ideas like this one? Members of CEF/ETF Income Laboratory get exclusive access to our model portfolio. Get started today »

Co-produced by Stanford Chemist

PGIM High Yield Bond Fund (NYSE:ISD) enjoyed quite the total market returns in 2019. The fund put up a 28.40% total market return as compared to its total NAV return of 17.47%. That can be explained by the fund boosting its distribution twice in 2019, as well as a mandate change that happened in March of 2019. With this type of return, we also saw a steep drop in the fund's average historical discounts. However, there may still be opportunity left as we see an increasing NAV for the fund and high distribution coverage. ISD also provides diversified exposure by utilization of a wide selection of sectors.

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ISD is similar to Western Asset High Yield Defined Opportunity Fund Inc. (HYI), except for two key differences. ISD doesn't utilize a term structure like HYI and ISD also utilizes leverage, whereas HYI does not. After recently covering HYI, it is time to take a look at the updated report for ISD as they released around the same time.

ISD "seeks to provide a high level of current income by investing primarily in below-investment-grade fixed income instruments." Also known as high yield or junk bonds. These types of bonds are issued by companies that are smaller and less financially stable relative to their generally larger counterparts. They will tend to be a bit more volatile during periods of panic. However, ISD holds 239 issues as of December 31st, 2019. The fund also holds issues from 31 different sectors and subsectors. This should provide quite the diversification should we get continued uncertainties going forward. Of course, the latest being the Coronavirus that has given the market quite the volatility over the last several weeks.

The fund is a healthy size at about $742 million in total managed assets, composed of $180 million in

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This article was written by

Nick Ackerman profile picture

Nick Ackerman is a former financial advisor using his experience to provide coverage on closed-end funds and exchange-traded funds. Nick has previously held Series 7 and Series 66 licenses and has been investing personally for over 14 years.

He contributes to the investing group CEF/ETF Income Laboratory along with leader Stanford Chemist, and Juan de la Hoz and Dividend Seeker. They help members benefit from income and arbitrage strategies in CEFs and ETFs by providing expert-level research. The service includes: managed portfolios targeting safe 8%+ yields, actionable income and arbitrage recommendations, in-depth analysis of CEFs and ETFs, and a friendly community of over a thousand members looking for the best income ideas. These are geared towards both active and passive investors. The vast majority of their holdings are also monthly-payers, which is great for faster compounding as well as smoothing income streams. Learn More.

Analyst’s Disclosure: I am/we are long ISD, HYI. 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.

This article was originally published on February 11th, 2020, to members of the CEF/ETF Income Laboratory.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (16)

alphaseek2018 profile picture
Bad timing. It's NOT time to buy even a little yet. I'd wait at least till April.
Nick Ackerman profile picture
Thank you for reading and commenting! That's certainly an understandable approach in this environment.
your unfortunately a day earlier got beaten up march 9.. am doing badly now with evv in my ira account
Nick Ackerman profile picture
Yes, everything took a big beating today!
alphaseek2018 profile picture
And the day before and today. No end in sight until we fall another -15% I feel. Maybe load up at that time and then collect with a yield-at-cost of about 18 to 20% for life, plus or minus, probably less if things gets worse for the US and global economy.
What % of ISD holdings are in energy?
Nick Ackerman profile picture
About 12% in energy as per their last annual report.
alphaseek2018 profile picture
Energy is broken. I'm staying away from adding even more MLPs.
Nick Ackerman profile picture
Yes, I'm not adding to any pure energy plays.
Most important thing to watch if you plan on investing in high yield: ENERGY. 11% plus of the bonds are high yield and look at the price of oil. Many of them coming due in 2021-22.

Energy can pull a CEF, but really that whole market down in a major way. Recall the last time oil crashed just a few years ago. 2015? High yield went with it and this time it will be much worse because there could be massive default. Playing with fire
Nick Ackerman profile picture
I appreciate you taking the time to read and share your thoughts!
Yes I remember when oil crashed, I bought ERF @ $2.00 a share and sold a year later too soon @ $6.50. It went to $12. Getting close again.
You lucked out....Not all companies will survive this time around.
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