Income Investing: Top Global Income Fund (GIFD:OTC)

Today's Financial News - Posted May 29, 2008

by J. Christoph Amberger

Baltimore — (TFN): As high-yield fund prices are trending up, Credit Suisses new Global Income Fund, Inc. (GIFD:OTC) looks like a promising junk-bond ETF for income investors with a high tolerance for share price fluctuations.

View our recommendation video of GIFD right here.

Capital is the lifeblood of capitalism—and credit the equivalent of a blood transfusion. If banks tighten credit and investors don’t buy shares, companies are forced to issue bonds. Those with sub-prime credit ratings have to draw investors by paying high interest rates when they borrow money, to compensate for the risk that they’ll default.

***Watch our video opinion on Top Global Income Fund (GIFD)***

Typically, junk-bond issuers will pay about 7 points more than the U.S. Treasury, or about 11% on a 10-year note to compensate for the risk that the company might default. So do some of the publicly traded junk bond funds.

Since bonds represent a last life line, companies don’t default lightly. The junk-bond default rate right now is about 1.1%, the long-term average default rate around 4.9%.

Over the past couple of months, high-yield funds have all but hit rock bottom. There is still plenty of room for further price drops, but I think it’s time to start looking for yields. Because prices have been in a sustained uptrend since Bear Stearns went belly-up.

One of the latest high-yield funds is the Global Income Fund, spawned by Credit Suisse converting its £17m Worldwide Growth fund into a global income vehicle.

It’s managed by Graham Ashby and team, who used to run the International Equity Income fund at Sarasin prior to joining Credit Suisse.

The primary objective of this non-diversified, closed-end investment management company is to provide shareholders with a high level of income. The fund invests at least 65% of its net assets in a global investment-grade fixed-income securities and closed-end funds rated BBB or better. The remaining 35% of its assets will be put in fixed-income securities rated CCC by S&P. Distributions of approximately 5% of the Fund’s net asset value per share will be made on an annual basis from ordinary income and net capital gains.

Global Income Fund, Inc. (GIFD:OTC) currently trades around $4, comparable to the New York-traded High Yield Plus Fund (HYP:NYSE). Unfortunately, these funds often lose more in share valuation than they gain in income.

Advisable Buying Range: Buy this ETF at current levels, but don’t expect to make gains on its share price appreciation.

Set your trailing stop to allow for the inevitable volatility that affects high-yield funds, don’t plan on cashing out within the next couple of years, and only invest if you can afford to consider buying an income engine.

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