Are These Junk Bonds Worth Buying? (FDC, HCA, TXU)

(May 8th, 2012) The Nuveen High Income Bond I (FJSYX) was one of the top performing high yield bond funds in the first five months of 2012, producing a gain of 8.99%. The fund is up 4.2% in the past 3 months.

We wanted to find out what this high performing fund is holding in its portfolio. Once a-quarter, mutual funds must disclose their holdings to the SEC. Nuveen reported its holdings on 02/29/2012. However, given the fund turns over 130% of its portfolio a year, its possible that these bonds are no longer in the fund’s top holdings:

Company Name Coupon Rate Maturity Date Yield Based On May 7th Market Price
First Data (FDC) 8.75% 1/15/2022   8.76%
HCA Holdings (HCA) 7.75% 5/15/2021   6.61%
Energy Future Holdings(TXU) 10.88% 11/01/2017   15.520%

The top three holdings are in three different industries: payment processing, healthcare and energy.

The bonds have an average maturity of 6.54 years and pay and average yield of 7.93% (or put another way 6.68% more than US Treasury Bonds with a similar maturity).

If you don’t want to buy individual bonds, should you consider investing in The Nuveen High Income Bond I (FJSYX)? The two managers responsible for trading decisions have both been with the fund since 2005 and 2008 respectively. From 2008 onwards, the fund has turned in returns of -28.93%, 57.29%, 15.64% and 1.35% respectively (2008-2011). In 2009 and 2010, the fund was the 11th and 20th best performing junk bond mutual fund out of the approximately 600 tracked by Morningstar. For the last 5 years, it ranks 26th in its category.

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