Credit Suisse Asset Management Income Fund (NYSE:CIK) is simply a closed-end money focused connected fixed income. The conveyance has a ample attraction of fixed complaint precocious output bonds astatine 72%, followed by leveraged loans astatine 20%. The money uses a normal magnitude of leverage astatine 33%, and has managed to execute mostly successful enactment with a aureate modular successful the abstraction successful the past year, namely PIMCO Corporate & Income Opportunity Fund (PTY).
From a macro perspective, 1 point that is of interest for HY CEFs successful general, is the level of recognition spreads:
U.S. precocious output recognition spreads are closing successful connected the 400 bps threshold that would determination them into a much 'normalized' environment. We consciousness this is simply a excessively overmuch of a narrowing, down substantially from the 600 bps level recorded astatine the extremity of July 2022. We are not retired of the woods yet successful presumption of cardinal performance, with defaults conscionable getting started. Moody's Rating Agency is expecting default rates to treble successful 2023:
Higher default rates should enactment upward unit connected spreads, and frankincense alteration the NAV of a HY CEF specified arsenic CIK. As this recessionary rhythm continues, we volition spot different spike up successful recognition spreads. While marketplace timing is an intolerable feat to achieve, we bash judge that recognition spreads astir 600 bps positive hazard escaped rates successful the 4% to 5% scope are going to beryllium astatine the apical extremity for spreads, and frankincense a bully bargain awesome (mind you this translates into all-in yields of 10% plus).
In the past year, CIK has had a full instrumentality illustration successful enactment with a aureate modular successful the HY CEF space, namely PIMCO Corporate & Income Opportunity Fund (PTY):
The money had a drawdown which exceeded -20%, but has recovered immoderate of that determination connected the backmost of tighter recognition spreads and little rates.
On a longer time-frame, the 3 funds converge successful presumption of full returns:
We similar longer time-frames cohort distributions due to the fact that it gives america a consciousness of existent show for a buy-and-hold retail investor. Longer periods of clip creaseless retired immoderate impermanent divergences owed to premium moves oregon idiosyncratic recognition issues.
Premium / Discount to NAV
The fund's discount to NAV has been range-bound successful the past years:
We tin spot that the conveyance traded pre-Covid with astir a -10% discount to NAV, which moved to a premium successful a zero rates environment. That determination made consciousness fixed the fixed complaint quality of the underlying collateral. In 2022 the fund's discount has had a precocious beta to the risk-on / risk-off marketplace environments.
The CEF focuses connected fixed paying precocious output bonds:
We tin spot from the supra array that the money has a 72% attraction successful precocious output bonds, followed by leveraged loans. CIK is the enslaved instrumentality connected the classical leveraged indebtedness CEF (i.e. 70% lev loans and 30% bonds).
The conveyance has a granular build, with manufacture concentrations beneath 18%:
We tin spot that the money does not overly ore its positioning successful immoderate circumstantial industry, having a granular build. We tin observe the aforesaid taxable successful the apical issuers:
The money is granular, with the apical issuer constituting lone 1.6% of the fund. Most names are nether 1% of the portfolio.
From a recognition hazard standpoint arsenic reflected successful the ratings of the underlying collateral, the money is connected the riskier side:
The conveyance has astir of the vulnerability allocated to the 'B' bucket astatine 39%, followed by 'BB' astatine 29% and 'CCC' astatine 25%. We find the 'CCC' bucket to beryllium precise large, reminding america of KKR Income Opportunities Fund (KIO) which we reviewed here.
The CEF has a 10% organisation yield, which is present afloat covered:
The conveyance does not station successful the nationalist abstraction its Section 19a. notices, but we managed to get the August 2022 one, which matches the supra information from Morningstar:
As spreads person risen successful the HY space, the money was capable to reinvest its currency successful overmuch higher yielding bonds. This has present resulted successful a afloat covered distribution. You are getting a existent 10% output here.
Credit Suisse Asset Management Income Fund is simply a precocious output CEF. The conveyance has a 72% fixed enslaved sleeve, followed by a leveraged loans sleeve of 20%. The money is connected the credit-riskier side, with the 'B' bucket astatine 39%, and 'CCC' astatine 25%. Middle of the roadworthy HY CEFs usually person the 'CCC' bucket capped astatine 10% of the portfolio. CIK has nevertheless managed a robust performance, comparing favorably connected a 1- and 5-year clip framework with the overmuch amended known PIMCO Corporate & Income Opportunity Fund (PTY). CIK is simply a precise good managed money that volition proceed to station bully returns successful our mind. The CEF's 10% dividend output is afloat supported, with the latest figures showing a 0% ROC utilization. This feat was achieved connected the backmost of overmuch wider all-in yields, the effect of higher hazard escaped rates and higher recognition spreads. CIK is simply a bully money successful the HY CEF sector, but we would hold for different limb down successful the wider hazard markets earlier layering successful this name.
This nonfiction was written by
With a fiscal services currency and derivatives trading background, Binary Tree Analytics aims to supply transparency and analytics successful respect to superior markets instruments and trades._____________________________http://www.BinaryTreeAnalytics.com
Disclosure: I/we person nary stock, enactment oregon akin derivative presumption successful immoderate of the companies mentioned, and nary plans to initiate immoderate specified positions wrong the adjacent 72 hours. I wrote this nonfiction myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary concern narration with immoderate institution whose banal is mentioned successful this article.