Tuesday January 31, 2012
by Paul Tracy, editor High-Yield International
AllianceBernstein Global High Income Fund (AWF) is a closed-end fund that invests primarily in high-yield corporate bonds and, to a lesser extent, emerging market sovereign debt.
High-yield debt consists of bonds issued by companies or governments that are rated below investment grade by the major credit ratings agencies such as Standard & Poor's and Moody's.
Roughly two-thirds of the fund's holdings are rated below investment grade, and the average coupon rate of the fund's bond holdings is just over 8.5%.
Companies and governments rated below investment grade carry higher credit risk, meaning that the odds they'll be unable to repay their borrowings are theoretically higher than for a company carrying an investment-grade credit rating.
Since the risk of default is higher, high-yield bonds tend to carry higher interest rates than investment-grade debt, a means of compensating investors for the extra risk they're taking.
With rates in the investment grade corporate and government bond markets so low, investors have been looking for higher-yielding alternatives, including high-yield debt. That's powered a significant rally in the exact sort of bonds that AWF focuses on.
For example, the fund's largest holding is a bond issued by the Argentinean government that matures in October 2015 that currently yields around 9%. Argentina has a credit rating of "B" from Standard & Poor's and "B3" from Moody's, several steps below investment grade.
There's no doubt the country has its share of economic and political problems. But Argentina's sovereign debt has seen a significant rally since August as investors are attracted to its high yields and solid economic fundamentals.
AWF's second-largest holding is a series of corporate bonds issued by Russian Agricultural Bank that are rated "BBB", the lowest possible investment-grade credit rating.
While banks in the U.S. and Europe have been troubled in recent years by bad loans made to residential homebuyers and shaky E.U. countries, Russian banks have relatively clean balance sheets.
Russia is a major exporter of natural gas, oil, coal and other commodities and continues to benefit from strong demand and pricing for its natural resources.
And the fund has little exposure whatsoever to debt issued by corporates or governments in fiscally challenged E.U. nations. Only around 0.5% of the fund's total portfolio is invested in bonds issued by Italian firms.
AWF pays a $0.10 monthly distribution, equivalent to a yield of roughly 8.4% at current prices.
Action to Take --> With a well-diversified portfolio of high-yield bonds offering a yield over 8%, AllianceBernstein Global High Income Fund is a solid buy candidate with moderate risk.
Learn more about this financial newsletter at Paul Tracy's High-Yield International.