Guest post by Peter Tchir.

State of the High Yield Market

The ETF’s and Closed End Funds are attracting a lot of attention.  Redemptions and poor performance in the past few days have caught a lot of people’s attention.  It also sounds like it is hitting traditional mutual funds.  It is worth looking at.

Unmitigated Disaster in Closed End Funds

Here is the craziest closed end fund I know of.  The PHK fund was down 26% since its peak but still trades at a premium of 27%.  I have never understood why people pay such a premium for a fixed income fund, and never will.  To me it is completely irrelevant what this fund does, except as a sentiment for the least thoughtful retail investors. We saw steep declines in other closed end funds.  Most had been trading at premium and are back to about intrinsic value.  With the leverage they use and small market cap I rarely follow them, but the size of the move is worth looking at.

Even the leveraged loan closed end funds got hit hard.  They are still at a premium but seeing drops of 3% to 5%.  That is far in excess of the two day drop of BKLN which has had a 1% drop.  The leverage and premium explain a lot of that additional drop.

Continue reading →