Published:
December 22, 2008
This
fund's veteran management team targets sovereign bonds
issued by foreign governments.
AllianceBernstein
Global High Income (NYSE: AWF, $7.22) is one of a relatively
small number of closed-end funds that specialize in foreign
fixed-income securities.
Just as Uncle Sam must borrow money to function, so do other
governments around the world. AWF focuses primarily on emerging
markets and holds debt issued by Argentina, Russia, South Africa
and other developing nations. The remainder of the portfolio has
been invested in a well-rounded mix of corporate bonds. Top
corporate holdings include securities backed by Brazil's Vale,
Singapore's Flextronics, and India's Vedanta Resources.
The overall portfolio straddles the border between short and
long duration and between low and high credit quality.
Investors have enjoyed price stability and generous
dividend distributions over the years. From January 2005 through
this past summer, the fund oscillated in a narrow channel
between $12 and $14 per share. Meanwhile, monthly payouts over
that span climbed from $0.075 to $0.093 per share.
But with the recent turmoil in the credit markets sending the
shares retreating to $7.22, those dividends equate
to a tantalizing yield approaching
15.5%.
In recent issues we have talked about unprecedented disruptions
in the fixed-income markets pushing yields to record-high levels
over U.S. Treasuries. And the emerging markets are certainly no
exception. By the beginning of October, spreads on corporate
debt in these countries had widened to more than 440 basis
points -- and that was before the real flight to quality even
began.
Fortunately, the unusual factors that caused the global credit
crisis have been easing. Plus, while growth in emerging markets
like Brazil and Russia may have slowed a tick, these are still
some of the world's fastest-growing economies. And the fund's
managers have been specifically targeting the most financially
sound of the bunch -- countries with hefty fiscal and trade
surpluses, ample foreign exchange reserves, and low debt ratios.
So I wouldn't count on this sale in AWF shares lasting
indefinitely. This is a portfolio that has posted healthy
double-digit gains in 7 of the past 10 years, racking up
annualized NAV returns of +11.4% along the way. That performance
lands in the top quartile of the emerging market bond category
and is stronger than many stock funds can claim.
AWF is a
fine option for investors seeking exposure to the long-term
growth prospects of emerging markets, but who aren't quite ready to
dip their toes back into equities just yet.
The fund may be a little too volatile for conservative
investors, and the risk of future defaults remains real.
However, I think the worst is behind us, and management has been
taking advantage of temporarily depressed prices and locking in
record-high yields.
Better still, this diversified portfolio of sovereign and
corporate bonds is currently trading at a
-25.4% discount. At
75
cents on the dollar, this is one of the widest discount in the fund's
15-year history.
Nathan Slaughter
Editor
The ETF Authority
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