Last week, I established a "toehold" position in the Western Asset Emerging Market Debt Fund (ESD). It is a closed end fund that mainly invests in high yielding dollar-denominated emerging market debt securities (e.g. including many Brady Bonds). Here are some of the reasons I like it:

1) Its sells at a discount to NAV of 14% and its management fee is only 0.95% a year.

2) ESD does not hold any sub-prime mortgage debt, but the recent problems in that area have dragged down all forms of high yield debt. ESD's 9% yield seems quite attractive.

3) ESD recently announced a new policy where it will be allowed to invest in more investment grade securities which should help to lower its discount from NAV. (Previously, the Fund had to invest at least 80% of its managed assets in securities rated below investment grade).

4) ESD also announced a new "managed distribution policy". The new level of distribution will be $0.1400 per month. In declaring the new rate, the Fund cited existing accumulated long-term capital gains that, under the terms of its new managed distribution policy, are available to increase the Fund's monthly distribution rate.

ESD is still invested in higher risk securities, but they use little leverage, so the fund is not as volatile as some other more leveraged funds. I plan to watch it over the next few months and add to my position over time if the high discount continues.

ESD 1-yr chart:

• Two Infrastructure Investment Opportunities in ETFs  »
• Largest Bond ETF Now Trading At a Massive Discount  »
• Using History to Plan Near-Term Investing  »
• iShares ETF Tracking Error: Risks and Explanations  »
• Friday Outlook: Who Let the Dogs Out?  »

George Spritzer

• Bio & more articles
• Visit: Quant Investor