Highland Global Allocation Fund: A CEF Offering 12%-Plus Yield and 33% Discount

Highland Global Allocation Fund (HGLB) is a closed-end fund investing in a mix of US and international stocks and fixed income assets. It offers a 12%-plus yield and is currently trading at a 33% discount. This may make it an attractive option for investors looking to diversify their portfolios and gain exposure to international assets.

The Highland Global Allocation Fund (HGLB), listed on the NYSE, is a closed-end fund (CEF) that offers investors a unique opportunity to diversify their portfolios with exposure to both U.S. and international assets. Managed by James Dondero, the fund aims to provide long-term growth of capital and future income by investing in a mix of U.S. and foreign equity, debt, and money market securities.

Fund Profile and Investment Strategy

Founded in 1998, HGLB was originally an open-end fund but converted to a closed-end fund in early 2019. The fund's investment objective is to seek long-term growth of capital and future income. It achieves this by investing in a portfolio of U.S. and foreign equity, debt, and money market securities. The fund's global thematic investment style focuses on undervalued securities with solid growth prospects, aiming for above-average risk-adjusted total returns.

Yield and Discount

One of the most appealing aspects of HGLB is its high yield. The fund currently offers a monthly dividend with an annual yield of approximately 12.5%. This yield is particularly attractive given the current market conditions. Additionally, HGLB is trading at a significant discount of around 33% to its net asset value (NAV), providing investors with a potential opportunity for capital appreciation as the discount narrows.

Risk Factors

While the high yield and discount make HGLB an attractive option, investors should be aware of the associated risks. Closed-end funds are known for their volatility and can experience wild fluctuations in share prices due to their discount/premium mechanisms. Moreover, the fund's investment in a limited number of issuers (with the top five names representing over 45% of the fund) increases the risk of price movements being more pronounced. The fund's illiquid and restricted securities also pose additional risks, as they may not be easily sold at desirable prices.

Conclusion

The Highland Global Allocation Fund (HGLB) presents an intriguing opportunity for investors seeking exposure to international assets and a high yield. With its 12.5% annual yield and 33% discount to NAV, HGLB could be a compelling addition to a diversified portfolio. However, investors should carefully consider the fund's risks and ensure it aligns with their investment objectives and risk tolerance. As always, thorough research and consultation with a financial advisor are recommended before making any investment decisions.