AllianzGI: Convertible Income

03/18/2016 8:00 am EST

Focus: FUNDS

Todd Shaver

Founder and Editor-in-Chief,

Todd Shaver, Editor of has just launched a new high yield model portfolio; here's a look at the first recommendation to the new portfolio.

Thanks to the combination of convertible and covered call holdings, AllianzGI’s Equity & Convertible Income Fund (NIE) provides exposure to both large cap and growth stocks.

The fund’s portfolio quality, distribution history, current discount, and historical market outperformance are driving this choice. NIE currently offers an 8.7% dividend yield which is paid quarterly.  

NIE has almost always traded at a discount, and that discount has widened to the highest level since 2009.

The discount seems to be driven by retail selling, as the fund’s performance, strategy, and outlook haven’t changed at all.

This indiscriminate selling has ignored the fund’s high quality portfolio, diversified asset holdings, and lack of energy exposure that makes it arguably less risky than the broader market.  

The fund has a relatively low exposure to utilities, materials, telco, and financials. Additionally, the fund gives us exposure to technology, consumer discretionary, and consumer staple sectors.

Thanks to the combination of convertible and covered call holdings, AllianzGI’s portfolio provides exposures to both large cap and growth stocks. The fund is currently writing calls on nearly half of its holdings. 

Covering over a third of the portfolio, the top 10 common stock and convertible holdings expose the fund to high-quality growth companies with low P/E ratios, including Apple (AAPL), Google (GOOGL), Microsoft (MSFT), and Texas Instruments (TXN).  

Despite the fund’s high quality large cap holdings, the fund is able to deliver a high yield to investors.  This is partly thanks to the fund’s discount-to-net asset value.  

AllianzGI is arguably a better buy to get common stock exposure than buying an index fund, as there is upside if the discount declines, upside if the fund’s underlying NAV increases, and a somewhat reliable income stream.

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