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ISD And GHY: Moving On To The High Yield Side

Published Wed, 13 Mar 2019 13:22:52 -0400 on Seeking Alpha

As many of our readers know, to make sense of the CEF world, we like to take a sector-based approach. This, generally, works well in explaining how a particular fund respond to different market conditions, whether it is priced attractively and whether it has generated alpha. That is, until a fund leaves the sector!
This is exactly what has happened to two PGIM funds which just went from the limited duration to the high yield sector:
PGIM Short Duration High Yield Fund (ISD) PGIM Global Short Duration High Yield Fund (GHY)
Source: BW
Apart from the name change, the announcement says three important things:
the funds are changing their mandate to include higher-duration securities and to include a limit on low-rated securities (i.e. rated Caa1 or lower by Moody's, CCC+ or lower by S&P or Fitch) the funds are also boosting their distribution rates by roughly 20% While we are not familiar with the thought process underlying a decision to potentially add risk in a late-cycle environment, we think it can be justified on a number of grounds. Given the distribution rate increase of the two funds, we expect them to trade more in line with the rest of the high yield sector, meaning their discounts should tighten a few percentage points. Our overall sentiment is muted, however, by the fact that the two funds have not shown strong alpha generation capacity in the past so we would position in these funds in a strictly tactical and short-term way.
Time To Dance?
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