Volf.. Wrong on 3.5 out of 4 I think
But let me quickly walk you through why i think so
1. This is not a "high yield fund". 50% of its assets are investment grade AAA-BBB, there is about 12% is cash, and the rest is unrated, but may be senior or secured, and at a minimum will be paying a large spread to BBSW.. which ultimately covers impairments if they end up occuring.
However, fear of credit losses is already recongnised in the NTA as it is marked to market every day. Hence the decline in NTA from 1.12 to 1.08 in the last 6 months. I really don't believe it is filled with "crap"
2. They don't disclose what proportion of their loans are fixed rate, they explicity state that their interest rate duration is only 20 days. So as BBSW increases so will their interest earned. (they make money as interest rates go up) Their credit duration is 2.7 years.. which is not long for a credit fund in my opinion. Whether or not any of the bonds are trading below par is irrelevant. The bond price is represented in the NTA.
3. i don't know where you get your estimate of USD loan exposure, because I can't find it anywhere. However, they explicitly state that they hedge their foreign currency loans back to AUD. However, if they did not hedge, the fund would gain as the USD strengthens, so they would have FX gains.
4. Fees are 88bp per annum.. Running yield at August end was 5.30% (345bps over the cash rate).. fee adjusted, running yield was 4.42%.
It would be about around 4.90% now, and will be over 5.4% again next month if the RBA tighten again.
Buying the fund at an 16.5% discount give you an equivelant running yield of 6.48%.
There is no way to build a bond porfolio similar to this even as a high net worth family office without paying fees.
Many people argue that LIC's or LIT's will trade indefinately at a discount due to fees.. that may be true, and I will credit you a 1/2 point
for being partially correct there.. but the historic discount is more like 4%.. so I would bet we will revert back to that at some stage in the next few years.
The real risk to me is two fold:
1.) there public documents are incorrect or fraudulent, or the fund is subject to criminal actions ( i view this highly unlikely)
2) the discount to NTA contines to widen for whatever reason you make up...clearly there is a trend to a wider discount to NTA for this LIT. at least in the meantime I earn my interest.
You can't make return without taking some risk. In my view this is a good risk/reward payoff.
link to the latest monthly is here:
https://www.perpetual.com.au/~/media/perpetual/pdf/resources/pci/2022/pci-sp-monthly-sp-investment-sp-update-sp-august-sp-2022.ashx?la=en
(20min delay)