CIK: A Cheap Bond Fund Outperformer With A 9.7%-Yield

In this post we highlight the Credit Suisse Asset Management Income Fund (CIK) trading at an 8% discount and a 9.7% current yield. CIK has been the best or nearly best-performing fund in the sector across different time periods.

In our view, this is the case for three reasons: 1) its unusually low fee structure which gives it a performance advantage versus other funds even before it gets out of bed, 2) its, what we call, cross-credit mandate that allows it to pursue a wider range of opportunities across a broader credit asset population such as bonds, loans, ABS and more, and 3) its clear and consistent profile of alpha generation.

CIK is a primarily high-yield corporate bond fund. About 2/3 of the portfolio is in corporate bonds, another 25% in loans and a smaller allocation in asset-backed securities. About a quarter of the fund is allocated to BB-rated assets and another quarter to CCC-rated assets with the rest primarily in B-rated assets. This allocation profile is somewhat lower-quality (in rating terms) than the average CEF, particularly with respect to the CCC rating bucket.

Historically, the fund has put up very strong returns in the High-Yield corporate bond CEF sector. It has the highest 3Y and 5Y total NAV returns and the second-highest 7Y total NAV return (only losing out to its sister fund).

total NAV returns

As of this writing CIK is trading at an 8% discount vs. a 7.2% average discount in the High Yield bond CEF sector. Although it has traded at a wider discount historically, the discount has widened significantly over the last few months after trading at a premium for much of 2021.

Discount and discount sector spread

The recent run-up in interest rates makes longer-duration assets much more attractive than they were over 2021. The widening in credit spreads has also made credit assets worth a look as well. This combination, along with a relatively robust macro picture, makes high-yield corporate bonds decent choices in a diversified income portfolio. CIK is a fund that offers exposure to this sector at an unusual combination of very low fee structure, very strong historic performance and now attractive valuation as well.

Thanks for reading.

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