{"id":88529,"date":"2023-11-24T23:19:23","date_gmt":"2023-11-25T04:19:23","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/wea-cef-buy-it-for-the-corporate-exposure-stay-for-the-high-yield-nysewea\/"},"modified":"2023-11-24T23:19:25","modified_gmt":"2023-11-25T04:19:25","slug":"wea-cef-buy-it-for-the-corporate-exposure-stay-for-the-high-yield-nysewea","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=88529","title":{"rendered":"WEA CEF: Buy It For The Corporate Exposure, Stay For The High Yield (NYSE:WEA)"},"content":{"rendered":"
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Thesis<\/h2>\n

The Western Asset Premier Bond Fund (NYSE:WEA<\/span>) is a fixed income closed end fund. The vehicle is an interesting CEF that offers a blend of investment grade securities and high yield. Investment grade (‘IG’) securities make up over 69% of the collateral pool, while the rest is composed of ‘BB’ securities. The fund is a bit unusual in its mix, since it tends to run mostly rates risk via its investment grade bond portfolio, with credit spreads secondary. The high yield sleeve acts as a dividend enhancer here, generating additional cash-flow to support the CEF’s 7.9% yield.<\/span><\/p>\n

We are living through historic times, and we believe in hindsight investors will recognize this period as the ‘peak rates’ one. This feature is not lost on the investment community, which has plowed a record amount of cash in bond funds in November:<\/p>\n

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Corporate bond flows (FT)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

After significant outflows starting in August, investors have pumped record cash into investment grade and high yield corporate bond funds, levels not seen since July 2020.<\/p>\n

There is an inverse relationship between rates and bond prices, and as rates move lower, bond prices will move higher. WEA’s portfolio has a 5.6 years duration, and is ideally set up to take advantage of the run-up in IG corporate bond prices as rates move down (the main risk factor for IG debt).<\/p>\n

In this article we are going to look at WEA’s composition, its analytics and risk factors, and articulate why this CEF looks attractive at the current juncture for a long term holder.<\/p>\n

We have covered this name before here, in the beginning of 2023, when the lack of clarity on the interest rate path had us at ‘Hold’ for the name. At the time we expressed a preference towards the BlackRock Multi-Sector Income Trust (BIT), a CEF which successfully hedged its duration profile during this monetary tightening cycle. We were correct in that view, with BIT outperforming 2x this year:<\/p>\n

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WEA vs BIT (Seeking Alpha)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The rating upgrade is due to the main risk factor for WEA peaking, namely rates. As rates are set to move lower, a retail investor would be well served to gain more duration in their investment account to benefit from the lower rates\/higher bond prices impact.<\/p>\n

Analytics<\/h2>\n