Western Asset Emerging Markets Debt Fund (ESD)

The Western Asset Emerging Markets Debt Fund (ESD) was brought to my attention by Where is the Yield? This closed-end emerging-markets bond fund has just been renamed by its new owner, Legg Mason. It is selling at about a 14.6% discount to its net asset value and has never exhibited more than a 15.8% discount in three years of trading.

According to etfconnect.com, ESD’s primary debt holdings are in “Other”, Brazil, Russia, Mexico,and Venezuela, in that order. In view of this dicey-looking portfolio the 6.79% yield is not spectacular; however, the fund’s beta is only .32 compared to betas of 1.6 and up for emerging market equity portfolios. Etfconnect has a link to an S&P stock report, and that report suggests average duration of the portfolio is about 3 years, average credit quality is BB+, and over half of assets are investment grade, so perhaps the portfolio is not unduly risky. The expense ratio is 1%. ESD is not using leverage now, but the fund’s rules do permit up to 33% leverage “in most situations”.

I see ESD as a good way to balance emerging market equity investments . But the chart suggests ESD may be a little overextended right now after rallying for the last 13 weeks, and I will wait for a significant pullback before initiating a postion. Due to the high yield and other possible tax inefficiencies my IRA is the proper destination for ESD.

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