It's Time To Rotate Out Of High-Yield CEFs

Published Tue, 14 Mar 2017 10:35:56 -0400 on Seeking Alpha

It’s Time to Rotate Out of High-Yield CEFs
For the past several weeks I’ve been anxious about high-yield fixed-income CEFs. I wrote about it here at the end of January, and followed up here and here. Clearly the category is overheated after a great run. If you bought into this category a year or so ago, you have done very well… on paper. Is it time to turn those paper profits into real gains? I think it is.
In a useful comment in one of his recent articles, George Sprizter pointed us to the Merrill Lynch US High Yield Total Return Index as an indicator for high-yield corporate bonds. I’ve been following it closely since and yesterday it crossed below its 50 day.
Here’s the two-year chart:

Here’s two years on the ETFs iShares High Yield Corporate (HYG) and SPDR Barclays High Yield Bond (JNK)

And some CEFs:

I’ve selected funds that I own or have been writing about frequently as representative examples of the high-yield fixed-income category: AllianzGI Convertible & Income (NCV), Avenue Income Credit Strategy (ACP), AllianzGI Diversified Income & Convert (ACV), Calamos Convertible & High Income (CHY), Wells Fargo Inc Opp (EAD).
Most are not pure high-yield corporate bond funds; they mix equities and convertibles into their portfolios, but even so, they are dropping with the HY index. EAD is a HY bond fund, so I’ve put it in here as an example.
I show both total return (reinvested... Read more