VBF: Revisiting This Investment Grade Bond CEF, 5.3% Yield
Summary
- VBF primarily invests in investment-grade (IG) corporate bonds but has increased its high-yield (HY) exposure to nearly 20%. It lacks leverage, making its risk/reward profile comparable to ETFs like IGEB.
- VBF’s long-term returns closely track those of its peers, particularly PAI. However, despite its exposure to HY bonds, it has not outperformed its IG-only counterparts, suggesting limited value from taking.
- The fund is trading close to its net asset value (NAV), whereas historical stressed environments have seen it trade at an -8% discount. This suggests limited upside at current valuations.
- The fund has a modest 5.33% distribution yield, with minimal reliance on ROC (around 4%), indicating relatively stable income generation without aggressive yield marketing.
- IG spreads are at decade-low levels (1.01%), meaning there is little room for further tightening, thus making this CEF unappealing currently.
Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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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