Closed-End Funds
Four Closed-End Funds for Current Income and Capital Growth
Closed-End funds can be used as one type of vehicle for earning current income and capital growth. Similar to ETFs, mutual funds, Closed-End funds can also be used to gain exposure to overseas markets which are difficult to access for foreign investors.
The following are some of the advantages of Closed-End funds:
- Opportunity to buy at a discount
- Efficient portfolio management
- Ability to control market price and timing
- Leverage potential
- Lower expense ratios
- Clear Commissions
- No minimums
Source: Closed-End Fund Association
Along with the usual risks associated with investment in equity markets such as market risk, inflation risk, political risk, etc. Closed-End funds can also be highly volatile during adverse market conditions due to their structure.
The following four Closed-End funds that offer potential for Income and Capital Appreciation:
1. ING Global Equity Dividend and Premium Opportunity Fund (IGD)
This fund pays dividend monthly and invests about 41% of portfolio in the US markets and the rest in foreign equities. The annual distribution yield is 11.79%. Financials form about 20% of the portfolio. The fund also uses call and put options to manage risk and enhance returns. The net asset base is $1.1B and the fund is currently trading at a premium of 8.35% to NAV.
2. ING International High Dividend Equity Income Fund(IID)
This CEF also pays dividend monthly. The current annual distribution yield is 10.76%. The fund invests in high-dividend-yield stocks or derivatives with 50% of portfolio in European securities, 40% in Asian Pacific equities and the rest in other equities. The net assets of the fund is $86M and the fund is now trading at a premium of 17%.
3.ING Asia Pacific High Dividend Equity Income Fund(IAE)
This fund invests in 75-100 high-yielding Asia-Pacific stocks. To enhance returns the fund also sells call options on select Asian-Pacific equities or indices. The fund has net assets assets of $208M and the annual distribution yield is 9.58%. In 2009, the fund’s market return was about 87%. Currently the fund is trading at a 4.58% premium. Australia, Hong Kong and South Korea have the highest weightings in the portfolio. Dividends are paid quarterly.
4. ING Global Advantage & Premium Opportunity Fund(IGA)
This CEF has an asset base of $242 M and the annual distribution yield is 10.42%. This fund invests 60% of portfolio in US equities and the remaining in foreign equities. The fund also uses call options to enhance returns. Because this fund is heavily concentrated in the US markets, the fund’s market return in 2009 was 41%. Dividends are paid quarterly.
14 Cheap International Closed-End Funds
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
Closed-End Funds with more than 10% dividends
In volatile market times, it is a good idea to take little baby steps with investing via closed-end funds. Here are five closed-end funds which have a distribution rate of more than 10%. Funds that trade at a discount are cheaper.
1.ING Global Equity Dividend Premium (IGD)
Premium/Discount: -7.69%
Distribution Rate: 13.10%
2.Spain Fund (SNF)
Premium/Discount: -9.50%
Distribution Rate: 12.60%
3.Aberdeen Australia Equity Fund (IAF)
Premium/Discount: 8.18%
Distribution Rate: 11.17%
4.Clough Global Opportunities Fund (GLO)
Premium/Discount: -10.34%
Distribution Rate: 10.14%
5.BlackRock International Growth and Income Trust(BGY)
Premium/Discount: -10.68%
Distribution Rate: 12.43%
Related post:
Closed-End Funds Conondrums
Closed-End Funds Conondrums
Which Closed-End funds should you buy now?
Invest in those funds that are trading at a discount to the NAV.Simply put they are cheap.
What are some of the funds trading cheap now?
Here are five closed-end funds:
1. Mexico Fund - MXF
Discount to NAV: -14.09%
2. New Germany Fund - GF
Discount to NAV: -13.40%
3. Singapore Fund - SGF
Discount to NAV: -12.64%
4. The New Ireland Fund - IRL
Discount to NAV: -11.55%
5. Chile Fund - CH
Discount to NAV: -9.19%
