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Illiquidity Won’t Influence SPHIX Immediately

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SPHIX: Credit rating breakdown

The Fidelity High Income Fund (SPHIX) is invested in bonds of companies like Huntington Ingalls Industries (HII), Dana Holding (DAN), CEMEX, S.A.B. de C.V. (CX), and HD Supply Holdings (HDS), among others.

As of October 2015, the latest available information, 45.7% of its assets were in B rated papers. Another 19.5% of the portfolio was invested in securities rated below B and unrated papers combined. A sizable 29.1% of the assets were invested into the highest-rated junk bonds.

Less than one-fifth of the fund’s assets are invested into the deeper end of junk bonds credit rating-wise. This is comforting given the situation in the junk bond market. Also, the fund has investments in the top tier of junk bonds. This is another positive.

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N-Q filing

SPHIX filed its latest N-Q form on September 29, 2015. The information in the filing is as of July 31, 2015.

Overall, a near negligible 0.1% of the fund’s assets were classified as Level 3. This was due to all of consumer discretionary stock holdings and 0.9% of bank loan obligations being labelled as such. Meanwhile, all of the corporate bonds were classified as Level 2.

As far as corporate junk bonds are concerned, there doesn’t seem to be much for SPHIX to worry about. None of its assets are into the most illiquid category. Even for the overall portfolio, its exposure to Level 3 classified securities is almost negligible.

Overall assessment

SPHIX isn’t under the threat of illiquidity immediately. Given its N-Q filing, even if liquidity dried up more, it wouldn’t be in trouble. Even in terms of credit ratings, investors should feel more comfortable that close to 30% of the securities are rated BB. However, if liquidity is really squeezed, investors may feel some discomfort due to 45.7% of the portfolio being invested in B rated securities.

Next, we’ll look at the MFS High Income Fund – Class A (MHITX).

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