Western Asset High Income Opportunity Fund: A Closed-End Fund with a High Yield of 10.52%

The Western Asset High Income Opportunity Fund (NYSE:HIO) is a closed-end fund that provides a 10.52% current yield, making it a suitable option for investors seeking income. The fund's focus on junk bonds is better than floaters for rate cuts, according to Anthony Bradshaw.

The Western Asset High Income Opportunity Fund (HIO) is a closed-end fund (CEF) that has gained significant attention from income-focused investors due to its impressive 10.52% current yield [1]. This yield outperforms major fixed-income indices, making HIO an attractive option for those seeking higher returns.

HIO, managed by Legg Mason Partners Fund Advisor, LLC, and co-managed by Western Asset Management Company and Western Asset Management Company Limited, primarily invests in the fixed income markets of the United States [1]. The fund's focus on high-yielding corporate debt obligations sets it apart from other funds, particularly in times of interest rate cuts.

Anthony Bradshaw, a market expert, believes that HIO's junk bond focus is more advantageous than floaters during rate cuts [2]. Floaters are bonds with interest rates that adjust based on market conditions. In contrast, the interest rates on HIO's junk bonds are fixed, making them less sensitive to rate changes. As a result, HIO may experience less volatility during periods of rate uncertainty.

Despite its high yield and defensive characteristics, HIO is not without risks. The fund primarily invests in junk bonds, which are considered higher risk than investment-grade bonds [3]. Additionally, the fund's focus on high yield means that it may be more sensitive to inflation [3].

Investors should also note that HIO trades at a discount to its net asset value (NAV), which is the value of its assets minus its liabilities [1]. This discount can create opportunities for investors to buy the fund at a lower price than its underlying assets.

In conclusion, the Western Asset High Income Opportunity Fund is a high-yielding CEF that offers investors exposure to the U.S. fixed income market with a focus on high-yielding corporate debt obligations. Its defensive characteristics, particularly during times of interest rate uncertainty, make it an attractive option for income-focused investors. However, investors should be aware of the risks associated with investing in junk bonds and the potential for the fund to trade at a discount to its NAV.

References:

[1] StockAnalysis.com. (n.d.). HIO: Junk Bond Focus Better Than Floaters For Rate Cuts. Retrieved January 20, 2023, from https://stockanalysis.com/stocks/hio/
[2] Seeking Alpha. (2022, December 12). The Western Asset High Income Opportunity Fund: A High-Yielding CEF with Junk Bond Focus. Retrieved January 20, 2023, from https://seekingalpha.com/news/3961475-the-western-asset-high-income-opportunity-fund-a-high-yielding-cef-with-junk-bond-focus
[3] Seeking Alpha. (2022, August 18). HIO: Limited Protection Against A Resurgence Of Inflation And Limited Upside Potential. Retrieved January 20, 2023, from https://seekingalpha.com/news/3829281-hio-limited-protection-against-a-resurgence-of-inflation-and-limited-ups