If you're looking for yield with price upside, these CEFs might be just the ticket
On December 21, 2018, I published an article that highlighted 40 Closed End Funds that I thought looked attractive. Today's article updates the previous one with current prices and YTD gains.
Most of these funds have done very well, as you will see. I intend to publish a new list in December 2019. Here is the article from last December.
How a Closed-End Fund Works (Investopedia)
While a closed-end fund has several unique characteristics that distinguish it from an open-end fund, such as a mutual fund or exchange-traded fund (ETF), it also shares several similarities with those two securities.
Both closed-end funds and open-end funds are run by an investment advisor, through a management team that trades the portfolio. Both also charge an annual expense ratio and can make income and capital gain distributions to shareholders.
A closed-end fund is created when an investment company raises money through an IPO and then trades its shares on the public market like a stock.
Closed-end funds often offer higher returns or better income streams than their open-end fund counterparts.
The price of a closed-end fund fluctuates according to supply and demand, as well as the changing values of its portfolio's holdings.
Why are CEFs so attractive right now?
When the stock market takes a beating like we're seeing right now, CEFs tend to decline more than mutual funds or ETFs because most CEFs use leverage to boost returns.
Leverage is great in a rising market but it can bite investors in the behind when things go south. That's exactly what's happening now.
My top 5 CEF picks for 2019
I maintain a watch list of CEFs that have solid records for price performance and payout consistency. There are 40 names on my watch list, and today I'm highlighting 5 of them that I think are exceptionally attractive.
All 5 of these names are trading at discounts to their net asset value and paying at least a 5% yield. There is no guaranty that these CEFs will rise in price from here, but the odds are compelling, in my view.
My full list - 40 CEFs that deserve attention
The results are very good
The average return YTD for all 40 CEFs on my list is 29.4% vs. 19.5% for the S&P 500. Is it too late to buy these names? No, but the upside from here is undoubtedly less than it was last December.
How to use these lists
I have screened the universe of more than 600 CEFs that are available to investors, and winnowed it down to just 40 names. These 40 finalists can be purchased today, under one condition - that you do your due diligence and/or consult your advisor before pulling the trigger.