Cef bgh high yield short duration – barings global short duration high yield fund (nyse bgh) seeking alpha e85 gas stations in san antonio tx


Barings Global Short Duration High Yield Fund ( BGH), formerly known as Babson Capital Global Short Duration High Yield fund before it changed its name on September 12, 2016. The name change was intended to clarify the trust’s relationship to Babson Capital Management LLC, the investment advisor, which concurrently changed its name to Barings LLC. At that time, the management announced all other aspects would remain unchanged. The fund has an inception date of 10/25/2012.

BGH’s investment objective seeks to generate as high a level of current income as they determine is consistent with capital preservation and seeks capital appreciation as a secondary objective. The fund intends to achieve this by expecting to maintain a weighted average portfolio duration of three years or less and weighted average portfolio maturity of five years or less. The fund will invest at least 80% of its assets in corporate bonds, loans, and other income-producing instruments that are rated below investment grade. The fund also may invest up to 50 percent of its managed assets in bonds and loans issued by foreign companies. Holdings

The fund currently has assets of $595 million with leverage of 27.93%, with a current weighted average duration of 2.06 years. So, they are definitely short term and sticking to their defined strategy stated above. With a shorter average duration, this fund could be viewed as more attractive than funds that carry longer termed bonds because there is more risk involved the further out a bond’s duration.

From the above-listed quality distribution percentages of their portfolio, you can see the largest chunk is in below investment grade which generally offers higher yield for the additional risks that are presented in such low-quality bonds. This is actually a positive in my view as high yields generally correlate closer to equities performance than their bond counterparts over a long-term time frame.

When looking on their website, it can be seen that over 70% of the fund’s assets are in U.S. issuers, this can be viewed as a positive as well because the U.S., in general, is more stable. But don’t let this fool you, the companies that issue high yield are not paying a high yield because they offer stability and often have underlying issues that force them to pay up for borrowed funds.

The top issuer is Valeant Pharmaceuticals ( VRX), for example, had debt of $26.2 billion and a market cap of $8.2 billion from an article I found from January 11, 2018. Also, from the article, it is stated that the company had $15.5 billion in goodwill and $16 billion in intangible assets that the company had on its balance sheet. Although from the article it is a positive piece that highlights there is light at the end of the tunnel with sales slowly climbing back up and its debt slowly being paid off. This is just an example though of one company that is having issues and why they have to pay a higher yield to borrow cash.

As can be seen from the chart above, the price of Brent Crude can be prone to rapid price fluctuations, so this sector does involve unique risks. As I stated above, I am hopeful though that a recovery can be sustained and would like to find some attractive CEFs to get in on the oil recovery but that’s a different subject.

The current distribution is a very attractive 9.44% that is paid on a monthly schedule at a rate of $0.1482. The NAV yield comes in at 8.61%. The distribution was just recently cut a few months ago from the prior rate of $0.1534. They wanted to align the distribution with what management thought was more appropriate for the outlook. I would have to assume that the management is at least partially sure that they will not need another cut for the rest of 2018.

When digging in through their most recent annual report ending December 31, 2017, it shows that they were indeed paying out slightly more than they were earning on NII. I would agree that for a fixed income fund, it’s prudent to make cuts when NII is not enough to cover shareholder distributions. This is viewed as a positive in my eyes because fixed income doesn’t have the same opportunity when it comes to capital appreciation that equity funds provide.