The Credit Suisse High Yield Credit Fund (DHY) presents an intriguing option for investors seeking exposure to below-investment-grade fixed income. This closed-end fund utilizes leverage to enhance its income potential, currently offering an attractive 9.3% yield and trading at a 4.76% discount to its net asset value. While this discount surpasses recent figures, it aligns with its historical average over the past decade, indicating that significant short-term appreciation from discount narrowing may be limited.
A closer examination of DHY's distribution reveals that approximately 90% of its payouts are supported by net investment income. Notably, the fund's distribution has found stability following a period of decline, a positive development largely attributable to the prevailing higher yield environment. This stabilization offers a degree of reassurance to income-focused investors.
From a portfolio diversification standpoint, DHY demonstrates considerable strength, spreading its investments across various sectors and issuers. However, a significant portion of its holdings consists of CCC-rated and lower-rated bonds. This elevated exposure to the riskier segments of the high-yield market warrants a cautious approach from investors. While higher risk can translate to higher potential returns, it also implies a greater susceptibility to market downturns and credit events.
Given the current valuation, with the fund trading at a discount consistent with its historical trends, the prudent strategy for existing holders appears to be maintaining their positions. For prospective investors, the present market conditions suggest that this might not be the opportune moment for substantial new investments. Instead, a more conservative stance, observing market dynamics and potential shifts in the fund's discount or credit quality, would be advisable before making significant commitments.
Ultimately, DHY offers a compelling yield driven by its leveraged exposure to high-yield credit. The recent stabilization of its distribution is a positive sign, but the inherent risks associated with its significant allocation to lower-rated bonds cannot be overlooked. Investors should carefully weigh the attractive yield against the potential for credit volatility, considering a holding strategy for existing investments and exercising prudence for new capital deployment.
