Western Asset Premier Bond Fund: Diversified Fixed-Income Portfolio for Monthly Income

Western Asset Premier Bond Fund (NYSE:WEA) offers diversified fixed-income exposure for monthly income through a portfolio of investment-grade and high-yield holdings. The fund provides investors with a broad range of fixed-income options, including corporate bonds, government securities, and mortgage-backed securities. WEA is a closed-end fund that aims to generate stable returns for investors while minimizing risk.

The Western Asset Premier Bond Fund (NYSE:WEA) offers investors a diversified portfolio of fixed-income securities, including investment-grade and high-yield bonds, designed to generate stable monthly income. As a closed-end fund, WEA provides a broad range of fixed-income options, such as corporate bonds, government securities, and mortgage-backed securities, to achieve its investment objective of seeking current income and capital appreciation.

Key Features of WEA

WEA's investment strategy focuses on a diversified portfolio of primarily investment-grade bonds, with a meaningful sleeve of below-investment-grade, high-yield debt investments. The fund employs leverage through a credit facility and reverse repurchase agreements to amplify returns, although this also increases the fund's total expense ratio to 3.71% WEA: Diversified Fixed-Income Exposure For Monthly Income^[1].

Performance and Risk

Since our last update, WEA has delivered solid results when compared to non-leveraged ETFs like the iShares iBoxx High Yield Corporate Bond ETF (HYG) and iShares iBoxx Investment Grade Corporate Bond ETF (LQD). However, it took some time for WEA to overtake these ETFs until July of this year. Over the longer term, WEA's NAV has come out strong relative to the U.S. Credit Index but lagged the U.S. Corporate High Yield Index in nearly all time frames except since inception WEA: Diversified Fixed-Income Exposure For Monthly Income^[1].

Leverage and Expense Ratio

The fund's leverage means amplified upward moves are possible, but also downward moves are more dramatic. With leverage comes higher expenses, increasing the fund's total expense ratio to 3.71%. The good news is that the borrowings are based on SOFR, and as the Fed cuts its target rate, those borrowing costs will ease. However, reverse repurchase agreements are a small part of WEA's portfolio at this point WEA: Diversified Fixed-Income Exposure For Monthly Income^[1].

Distribution and Yield

For income investors, the frequency of distribution payments is crucial. WEA delivers a monthly distribution, which has been relatively stable over the years. The fund pays an attractive distribution yield of 7.46%, with the NAV rate coming in at 7.24%. Net investment income coverage is around 88%, which means the fund is paying out a distribution that is mostly covered from the income generated in the underlying portfolio WEA: Diversified Fixed-Income Exposure For Monthly Income^[1].

Portfolio Composition

WEA's portfolio is investment-grade tilted, with around 65% of the fund in BBB or above-rated securities. The fund's effective duration is 5.66 years, and its weighted average life is 8.98 years, indicating a higher interest rate sensitivity. The fund holds 368 total holdings, providing substantial diversification, although the fund's benchmark includes 1951 holdings, indicating some room for further diversification WEA: Diversified Fixed-Income Exposure For Monthly Income^[1].

Conclusion

Western Asset Premier Bond Fund (NYSE:WEA) offers a diversified fixed-income portfolio with a focus on investment-grade bonds. It provides monthly income for investors and aims to generate stable returns while minimizing risk. While the fund has shown solid performance and a stable distribution history, its narrow discount and higher expense ratio due to leverage keep it in a neutral holding for now. Investors should consider the fund's risk profile and investment objectives before making a decision.

References

WEA: Diversified Fixed-Income Exposure For Monthly Income^[1] https://seekingalpha.com/article/4827943-wea-diversified-fixed-income-exposure-monthly-income