The Wall Street Journal’s Jason Zweig has written an interesting article on the risks of high yields paid by closed-end funds. Closed-end funds trade like stocks and are considered cheap when they trade at a discount to their NAVs. They trade at a premium if the market price is more than their NAV. Closed-end funds can be extremely volatile especially during tough market conditions.

Jason Zweig mentions three funds which recently traded at a high premium and whose high yields may be unsustainable. The three funds noted are:

Pimco Global StocksPLUS & Income Fund (PGP)
Pimco High Income Fund(PHK)
Gabelli Utility Trust (GUT)

Investing in closed-end funds just for high yields is risky. However they can be considered for gaining some diversification in a portfolio.

The following 14 International Closed-End Equity Funds trade at a discount of at least 10% to their NAVs:

1. The Central Europe & Russia Fund (CEE)
Current Premium/Discount: -11.83%

2. Morgan Stanley Eastern Europe Fund (RNE)
Current Premium/Discount: -10.04%

3. The Mexico Fund (MXF)
Current Premium/Discount: -12.23%

4. First Israel Fund (ISL)
Current Premium/Discount: -10.05%

5. Korea Equity Fund (KEF)
Current Premium/Discount: -10.90%

6. First Trust/Aberdeen Emerging Opportunity (FEO)
Current Premium/Discount: -11.44%

7. Clough Global Equity (GLQ)
Current Premium/Discount: -13.88%

8. Clough Global Opportunities (GLO)
Current Premium/Discount: – 13.07%

9. The Thai Fund (TTF)
Current Premium/Discount: -15.55%

10. The Malaysia Fund (MAY)
Current Premium/Discount: -14.08%

11. The Taiwan Fund (TWN)
Current Premium/Discount: -11.53%

12. The Thai Capital Fund (TF)
Current Premium/Discount: -17.01%

13. Morgan Stanley Frontier Emerging Market Fund (FFD)
Current Premium/Discount: -13.91%

14. Emerging Markets Telecommunications Fund (ETF)
Current Premium/Discount: -12.30%

Source: CEFA