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Closed End Funds (CEF's) Discounts and Yields worth exploring.
I have looked at CEFs from time to time but they are complex and many use leverage to juice their returns or return your own capital to you disguised as a dividend. I recommend researching CEFs at M* before you invest.
Anyone have any particular stock or balanced recommendations for CEFs? I find FEO and INF interesting but haven't really found many others that really stand out.
Reply to @scott: Bought my first CEF yesterday. FAM @ near 52 week low ,10.9% annual yield paid monthly & about an 8.4% discount to NAV.Rising interest rates and owning gov't and corp. debt in countries the likes of Russia,Brazil,Hungary etc and 23% leverage certainly pose risks but @ less than .5% of my non-taxable portfolio I added FAM to my EM debt sleeve.Also looking @ INF vs UTF and also your aformentioned FEO, which appears to be the 50% equity sister fund to the bond/debt holdings of FAM.
The expansion of discounts is particularly pronounced in the fixed income (especially munis) space. My investments here are limited to PDI and GIM. May add more to GIM and may buy SOR, INF and DSL if the discounts expand further. RiverNorth funds may be an interesting way to invest in the CEF space.
Wary of FEO -- the Aberdeen emerging mkt funds have had a long run up with very little portfolio turnover and a massive increase in AUM. Quite possible that the run up in the portfolio stocks was supported by the AUM increase.
The one thing I always look at with a fixed income CEF is how much of the distribution is return of capital.
In the case of FAM, ~13.6% of their last 3 monthly distributions consisted of return of capital and was higher before that.
UTF is even worse with their last 2 distributions being ~64.2% return of capital and increasing over time with earnings paid out dropping over the same.
Not always a deal breaker but definitely a red flag in my book.
Comments
Bought my first CEF yesterday. FAM @ near 52 week low ,10.9% annual yield paid monthly & about an 8.4% discount to NAV.Rising interest rates and owning gov't and corp. debt in countries the likes of Russia,Brazil,Hungary etc and 23% leverage certainly pose risks but @ less than .5% of my non-taxable portfolio I added FAM to my EM debt sleeve.Also looking @ INF vs UTF and also your aformentioned FEO, which appears to be the 50% equity sister fund to the bond/debt holdings of FAM.
Wary of FEO -- the Aberdeen emerging mkt funds have had a long run up with very little portfolio turnover and a massive increase in AUM. Quite possible that the run up in the portfolio stocks was supported by the AUM increase.
GLTA,
BWG
http://www.morningstar.com/advisor/t/79568114/when-are-discounted-cefs-bargains.htm?&single=true
The one thing I always look at with a fixed income CEF is how much of the distribution is return of capital.
In the case of FAM, ~13.6% of their last 3 monthly distributions consisted of return of capital and was higher before that.
UTF is even worse with their last 2 distributions being ~64.2% return of capital and increasing over time with earnings paid out dropping over the same.
Not always a deal breaker but definitely a red flag in my book.
http://news.morningstar.com/articlenet/article.aspx?id=605930
http://news.morningstar.com/articlenet/article.aspx?id=607578