Western Asset Diversified Income Fund (WDI)

Western Asset Diversified Income Fund offers an 11.8% yield, focusing on high-yield credit and monthly income for investors seeking stability amid market volatility. WDI's share price has declined, but total returns including distributions reached 8.4% over the past year; most returns are from income, not capital appreciation. The fund's aggressive leverage and high exposure to below-investment-grade credit add risk, especially in a high-rate environment, warranting caution.

Western Asset Diversified Income offers high current income via an actively managed, multi-sector credit portfolio, using leverage and dynamic asset allocation to capture diverse risk premiums. The fund's structural leverage amplifies both income and NAV volatility, with its performance highly sensitive to funding costs and credit market conditions. Key macro indicators—bank reserves, repo stress, and credit spreads—currently signal a stable environment, supporting the fund's pro-cyclical, credit-focused strategy.

WDI offers broad fixed income exposure and a high yield, but is heavily weighted toward non-investment-grade assets and uses leverage, increasing risk. The fund's current 11.84% yield is attractive, but coverage of distributions has weakened slightly year over year. WDI has outperformed its category in 2025, but trades at a small premium to NAV, above its historical average discount, reducing its value proposition.

Ongoing market volatility may not surprise investors — but the potential of a multi-sector bond strategy to deliver reliable income might. WDI focuses on delivering high, consistent income by dynamically allocating across diverse fixed income sectors. Discover how a dynamic credit allocation can help investors manage risk and stay resilient from Mike Buchanan, Chief Investment Officer at Western Asset Management.

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The tech-heavy Nasdaq started to dip toward the end of February, but a strong last trading day of the month rally clawed back some of those losses. The equal-weighted S&P 500, as measured by the Invesco ETF RSP, held up reasonably well thanks to the value sectors putting up some better performance. Every month, I put some cash to work to grow my CEF portfolio income, though I've been allowing my cash pile to also grow over the last year or so.

I am downgrading my rating on WDI due to the Fed's hawkish stance, prolonging the high interest rate environment. WDI's portfolio, heavily weighted in below investment grade credit, is sensitive to rising costs of debt and potential defaults, impacting net investment income. The fund's NAV discount has shrunk, reducing its attractiveness. The dividend yield remains high but may not be fully supported by net investment income.

Every month I add to my income-focused CEF portfolio, which creates a snowball and compounds growing cash flow over time. With some greater volatility opening up in the broader market, that helped to provide some select opportunities in what appears to be an otherwise still pretty pricey market. While no one knows what the future holds for sure, I'm still holding on to a sizeable cash position that I'd look to deploy in a broader market correction.

WDI pays a monthly distribution, has a termination date of 6/4/2033. WDI's valuations show a discount to NAV, but historical discounts have been deeper. The article provides a comprehensive overview of the fund's profile, including its dividend yield, holdings, and performance metrics.

Western Asset Diversified Income Fund (WDI) is a multi-sector fixed-income CEF that's been performing quite strongly, though with the trade-off of a narrowing discount. WDI's distribution yield is quite attractive at 11.85%, but coverage is tight, and with the Fed cutting rates, that will likely face even more pressure. Alternative multi-sector fixed-income funds are also richly valued, which I believe still makes WDI worth holding despite the less appealing discount and tight distribution coverage.

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As a retired income investor, I focus on high-yield CEFs for reliable monthly distributions and potential capital gains from NAV discounts. Five CEFs to avoid currently: GOF, VVR, ARDC, WDI, IGR, due to high relative premiums or unfavorable market conditions. Recommended CEFs to buy/add: AOD, ASGI, JRI, MEGI, OPP, FSCO, offering high yields and potential for capital gains with favorable market conditions.

WDI offers an attractive 11.6% dividend yield, making it appealing for income-focused investors seeking supplemental income amid a low-return forecast for the S&P 500. The fund's diverse portfolio, primarily composed of high-yield credit investments, CLOs, and bank loans, supports its high distribution yield despite higher risk. Future interest rate cuts could enhance WDI's valuation and borrower environment, potentially boosting NAV growth and maintaining strong net investment income.

We review the CEF market valuation and performance through the third week of August and highlight recent market action. CEFs had a strong week, with most sectors finishing in the green, supported by lower Treasury yields. Tortoise plans to merge three MLP-focused CEFs into a new ETF, potentially eliminating discounts but don't call it an arbitrage.

We review CEF market valuation and performance through the second week of August and highlight recent market action. CEFs were mixed, with MLP funds recovering while REIT funds struggled. The CEF, High Income Securities Fund, is implementing a novel strategy to get its initiatives approved by shareholders.