Diamond Member Pelican Press 0 Posted May 2, 2024 Diamond Member Share Posted May 2, 2024 Income investors can find double-digit yields at a discount with this play For income-seeking investors, a fresh opportunity to scoop up enhanced yield has reemerged, according to DoubleLine CEO Jeffrey Gundlach. Enter the closed-end fund, a relative of the traditional, open-end mutual fund. Closed-end funds trade on public exchanges and are traded throughout the day. They also offer a limited number of shares, meaning the share price may trade at a discount or a premium to the fund’s net asset value. Many also use leverage, which can introduce some volatility — and also juice returns. Gundlach highlighted closed-end funds on CNBC’s ” Closing Bell ” Wednesday afternoon, noting that it’s “a pretty good environment for moderate risk assets.” “For retail investors, closed-end funds have gone back to trading at discounts broadly, and with some leverage involved there, there’s double-digit yields available without taking a ton of credit risk,” he said. Searching for discounts Drivers of these closed-end fund discounts, particularly those that hold bonds, include sharp spikes in yields. Bond yields and prices move inversely to one another, and a jump in rates dents the prices of those holdings. One area where you might see sharp discounts would be closed-end funds holding municipal bonds. Investors love muni bonds as they provide income free from federal taxes. For instance, the Abrdn National Municipal Income Fund (VFL) is trading at a 15% discount to its net asset value, according to Nuveen’s CEF Connect, a database of closed-end funds. It has a distribution rate of 5.45%. Municipal bonds also offer tax-exempt income if investors reside in the state where the bond is issued – and there are closed-end funds that fit that bill. There’s the Eaton Vance California Municipal Income Trust (CEV) , trading at a discount of 11% and offering a distribution rate of 5.07%, according to CEF Connect. California’s top income tax rate is currently 14.4%. Other closed-end fund offerings can range from taxable bonds to covered-call funds and master limited partnerships. Shopping tips Don’t let sizable discounts and distribution rates distract you in a search for the right closed-end fund. For starters, a high distribution rate and a declining share price return could signal trouble for investors, according to Fidelity. That might mean the distributions are steadily eating into the fund’s net asset value — and your payments are more of a return on capital than they are income generated from the underlying investments. Understand what’s driving these payments within your fund, and make sure they are sustainable. Further, closed-end funds have fees, which can exceed 1%. Higher fund expense ratios take a ***** out of your returns in the long run. Finally, closed-end funds’ use of leverage can enhance returns — but it can also magnify downside. Leverage is also more expensive for portfolio managers to maintain in a time of higher interest rates. Be mindful about the extent to which your fund uses it. This is the hidden content, please Sign In or Sign Up Delaware Investments National Municipal Income Fund,Personal finance,business news #Income #investors #find #doubledigit #yields #discount #play This is the hidden content, please Sign In or Sign Up 0 Quote Link to comment https://hopzone.eu/forums/topic/25648-income-investors-can-find-double-digit-yields-at-a-discount-with-this-play/ Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.