First Trust High Yield Opportunities 2027 Term Fund: A Closer Look at Yield and Performance

First Trust High Yield Opportunities 2027 Term Fund (FTHY) has garnered attention for its high distribution yield and exposure to high-yield bonds and senior loans. As of 2024, FTHY offers a yield of 10.89%, making it an attractive option for income-oriented investors. However, a closer examination of the fund's performance and discount trends reveals a more nuanced picture.

FTHY's high yield is a result of its portfolio composition, which includes high-yield bonds and senior loans. This focus on higher-risk, higher-return assets has contributed to the fund's attractive income stream. However, it's essential to consider the fund's performance relative to bond indices. FTHY has underperformed bond indices over the past three years, which can be attributed to several factors.

First, FTHY's exposure to high-yield bonds and senior loans exposes it to higher risk, as evidenced by the fund's discount narrowing since our last update. This narrowing discount indicates a potential decrease in investor confidence. Additionally, the fund's closed-end structure may contribute to its underperformance, as these funds often trade at a discount to their net asset value (NAV). Lastly, the fund's focus on providing current income may have led to a less diversified portfolio, making it more susceptible to market fluctuations.


FTHY's discount has narrowed over the past three months, indicating improved investor sentiment or a decrease in risk perception. However, it's crucial to compare FTHY's discount with its peers to understand if this narrowing is an industry-wide trend or specific to FTHY. If FTHY's discount has narrowed more significantly than its peers, it may suggest that investors are increasingly optimistic about the fund's prospects. Conversely, if the discount has widened, it could indicate that investors are becoming more cautious about the fund's performance.

FTHY's distribution yield compares favorably with other high-yield bond funds, such as PIMCO Dynamic Income (PDI) at 8.3% and iShares iBoxx $ High Yield Corporate Bond ETF (HYG) at 4.5%. While FTHY's yield is attractive, it's essential to consider the impact on total return. FTHY has underperformed bond indices over the past three years, but its high yield may provide a steady income stream for investors seeking retirement income.

In conclusion, First Trust High Yield Opportunities 2027 Term Fund (FTHY) offers an attractive yield and exposure to high-yield bonds and senior loans. However, investors should be aware of the fund's underperformance relative to bond indices and monitor its discount trends to make informed decisions. As FTHY approaches its liquidation date in 2027, investors may be more willing to hold the fund at a lower discount, anticipating potential gains upon liquidation.