HIX: Continued NAV Destruction Makes High-Yielding Fund Hard to Recommend

The Western Asset High Income Fund II (HIX) is a closed-end fund that invests in domestic and foreign junk bonds, aiming to provide high yields to investors. However, continued net asset value (NAV) destruction makes it difficult to recommend this high-yielding fund. Despite its high dividend yield, investors should be cautious due to the risk of default and potential losses.

The Western Asset High Income Fund II (HIX) is a closed-end fund that invests in domestic and foreign junk bonds, aiming to provide high yields to investors. However, continued net asset value (NAV) destruction makes it difficult to recommend this high-yielding fund. Despite its high dividend yield, investors should be cautious due to the risk of default and potential losses.

HIX, managed by Legg Mason Partners Fund Advisor, LLC, invests in high-yield debt securities issued by U.S., foreign corporations, and foreign governments. The fund offers a high dividend yield of 14.3%, but its inconsistent earnings history raises concerns about dividend sustainability [1]. The fund's performance is heavily influenced by credit spreads, which have been at historic lows, leading to leveraging up [2].

Investors should note that HIX's share price has declined by 34.90% over the past three years, and the fund's NAV has been declining, making it difficult to recommend this fund for long-term investment. The fund's high leverage (32.28%) and high yield (13.42%) come with significant risks, including the potential for default and loss of capital [3].

The fund's exposure to foreign assets and emerging markets provides diversification benefits, but it also introduces additional risks. The recent rise in U.S. bond yields has negatively impacted the fund's performance, as the fund's strategy relies on leveraging to achieve high yields [4].

Investors should also be aware of the fund's use of rights offerings to raise capital. The 2022 rights offering raised approximately $31 million, which was deployed into purchasing new assets. While this strategy may help to stabilize the fund's NAV in the short term, it does not address the underlying issues of high leverage and inconsistent earnings [5].

In conclusion, while HIX offers a high dividend yield, investors should exercise caution. The fund's high leverage, high yield, and NAV destruction make it a risky investment. Investors should carefully consider their risk tolerance and investment objectives before investing in HIX or any high-yielding closed-end fund.

References:
[1] https://stockanalysis.com/stocks/hix/
[2] https://seekingalpha.com/article/4805003-hix-continued-nav-destruction-makes-it-hard-to-recommend-high-yielding-fund
[3] https://seekingalpha.com/article/4805003-hix-continued-nav-destruction-makes-it-hard-to-recommend-high-yielding-fund
[4] https://seekingalpha.com/article/4805003-hix-continued-nav-destruction-makes-it-hard-to-recommend-high-yielding-fund
[5] https://seekingalpha.com/article/4805003-hix-continued-nav-destruction-makes-it-hard-to-recommend-high-yielding-fund