AllianceBernstein Global High Income Fund (AWF): Navigating Rising Rates with Strategic Leverage and Hedging

As central banks globally pivot toward tighter monetary policies, fixed-income investors face a critical challenge: balancing income generation with resilience to rising rates. Enter the AllianceBernstein Global High Income Fund (NYSE: AWF), which has positioned itself as a compelling solution for investors seeking to capitalize on high-yield opportunities while mitigating rate-related risks. By leveraging its portfolio's 54% allocation to non-investment-grade corporates, 19.53% in credit default swaps (CDS), and a disciplined focus on duration management, AWF offers a tactical playbook for navigating a tightening environment.

The High-Yield Engine: Non-Investment Grade Corporates

AWF's portfolio is anchored in high-yield corporate bonds, which account for over half its holdings. These BB- and B-rated securities (comprising 69.24% of the portfolio) typically offer yields that outpace government and investment-grade bonds, a critical advantage in an era of rising rates. While higher-rated bonds (BBB and above) make up 15.09%, the fund's focus on lower-rated credits ensures it captures premium income from sectors like energy, communications, and consumer non-cyclical industries—areas where corporate earnings are often less sensitive to rate hikes due to strong demand fundamentals.

Hedging with Precision: Credit Default Swaps and Leverage

To counterbalance the inherent credit risk of high-yield bonds, AWF deploys 19.53% of its portfolio in CDS, instruments that act as insurance against defaults. This strategic use of derivatives not only protects principal but also allows the fund to maintain its yield-generating exposure without overexposure to idiosyncratic risks. Combined with its 20.78% total leverage, sourced entirely from investment operations (no bank debt), AWF amplifies returns while maintaining flexibility to adjust positions as rates evolve.

The fund's effective duration of 3.00 years further shields it from interest rate volatility. Shorter-duration bonds reduce price sensitivity to rate increases, making AWF's holdings less vulnerable to the typical “duration drag” seen in longer-maturity fixed-income products.

Geographic and Sector Diversification: A U.S. Core with Global Reach

While 67.83% of the portfolio is U.S.-centric, AWF's geographic diversification mitigates reliance on any single economy. Exposure to Europe (e.g., France at 2.97%) and emerging markets (Brazil at 1.79%, Mexico at 1.64%) provides incremental yield without overconcentration. Sector-wise, allocations to communications (media and telecom) and energy—industries with pricing power and secular growth trends—enhance income stability.

The fund's 99.98% U.S. dollar exposure further insulates it from currency fluctuations, a critical advantage as the Fed's rate hikes strengthen the dollar. This contrasts sharply with global bond funds that may face headwinds from a rising greenback.

Why AWF Thrives in a Fed Tightening Cycle

1. Yield Resilience: High-yield bonds have historically outperformed Treasuries during rate hikes when economic growth remains intact. AWF's BB/B focus ensures it captures this spread advantage.
2. Hedging Efficiency: CDS mitigate the risk of defaults in a slowing economy, preserving capital even if select issuers stumble.
3. Leverage Discipline: The fund's moderate leverage—far below the industry average—avoids overextension, a common pitfall in rising-rate environments.

The Bottom Line: A Compelling Income Play with Strategic Safeguards

In a landscape where traditional bonds falter and equity volatility reigns, AWF stands out as a high-conviction fixed-income option. Its blend of high-yield exposure, tactical hedging, and duration discipline creates a portfolio engineered to navigate Fed tightening while maintaining income generation. For investors willing to accept moderate credit risk, AWF offers a rare combination of yield, diversification, and risk management—a trifecta of attributes critical for success in 2025 and beyond.

Act Now: With the Fed's rate path still uncertain and yields at multiyear highs, AWF presents an opportunity to lock in income while hedging against the risks of a shifting monetary landscape. This is not just an investment—it's a strategic hedge for the modern portfolio.