Here are the best closed-end funds for income.
Closed-end funds, or CEFs, have been around for more than 100 years. Shares of CEFs are traded on the open market. Like stocks, CEFs are offered at an initial public offering. They’re invested in a portfolio of securities and managed by an investment firm. Unlike typical mutual funds, new money doesn’t flow into these funds; the existing shares are bought and sold by investors. CEFs, similar to exchange-traded funds, invest in a variety of securities such as stocks, bonds and alternative investments. CEFs can also sell at a premium or discount to their net asset value — meaning you can essentially buy shares on sale. CEFs have a distribution rate, instead of a dividend rate, and this may consist of earnings, capital gains and return of principal. If you’re considering a CEF, review its prospectus to understand how the yield is determined. Here are seven of the best closed-end funds for income across a variety of sectors.
The India Fund (ticker: IFN)
Investors who are bullish on the future of the Indian economy might consider The India Fund. The fund seeks long-term capital appreciation by investing in the shares of Indian companies. India has been one of the fastest-growing economies in the world. Some of the fund’s top holdings include Housing Development Finance Corp. (HDFC), Infosys (INFY) and Tata Consultancy Services (TCS). Like most of the world, India has been hit hard by the pandemic, which could affect the country’s future growth. Despite this, India has many positive growth trends such as the rise of the middle class, higher rates of education, forecasts for strong economic expansion and increasing foreign investments in the country.
Voya Emerging Markets High Dividend Equity Fund (IHD)
The Voya Emerging Markets High Dividend Equity Fund predominantly owns dividend-producing securities of emerging markets. IHD also sells call options to boost income, and the underlying value of the call options represents approximately 15% to 50% of the total value of the fund. The fund uses an investment technique to achieve its desired dividend yield, weighing the portfolio by region and sector to select emerging market stocks with an appealing risk/reward profile. This CEF holds many recognizable names, such as Alibaba Group (BABA), Tencent Holdings (TCEHY), Taiwan Semiconductor Manufacturing Co. (TSM) and Samsung Electronics. The fund is heavily weighted in the financial and information technology sectors, with 17% and 21% allocations, respectively.
ASA Gold and Precious Metals Limited (ASA)
This actively managed CEF invests in companies involved in the mining, exploration or processing of gold, silver, platinum and other precious metals. “ASA has notably outperformed other funds in this sector including GDX and GDXJ during its tenure,” says Steven Jon Kaplan, CEO of True Contrarian Investments. The expense ratio is 1.02% while the current discount to net asset value (as of June 17, 2021) was 14.42%, which is almost twice its historic average, Kaplan notes. “Any time you can purchase a worthwhile closed-end fund at twice its discount, it is worthwhile since eventually, the discount will likely narrow to its long-term average,” he says. Another positive sign for ASA, Kaplan says, is that “there has also been repeated insider buying of ASA during the past several months.” That said, he cautions investors to gradually accumulate shares since ASA is in a volatile sector.
Eaton Vance Limited Duration Income Fund (EVV)
If you’re interested in a fund with an investment objective to provide a high level of current income, this CEF from Eaton Vance may be worth considering. EVV is a limited duration income fund that offers investors access to a wide range of diversified income asset classes such as corporate bonds, agency mortgage-backed securities and emerging market debt. The fund’s core strategy is to provide limited interest-rate risk with an average duration of zero to five years. Stoyan Panayotov, CEO of Babylon Wealth Management, points to several attractive fund traits including trading at a discount, paying a 9% dividend yield and strong historical performance. While there are securities with a range of credit quality, the fund aims to maintain an average credit quality of investment grade. This way you can be confident you’re investing in a quality security.
BlackRock Taxable Municipal Bond Trust (BBN)
This is another CEF that seeks high current income first and capital appreciation second. The fund invests at least 80% of its assets in taxable municipal bonds, including Build America Bonds, or BABs. “BABs were issued in the aftermath of the Great Recession to help local governments with funding infrastructure projects,” Panayotov says. “The interest on these bonds is subsidized by the federal government, which makes them a lot safer than a typical municipal bond.” The fund can also invest up to 20% in other taxable municipal bonds such as U.S. Treasurys and bonds issued by private universities and hospitals. BBN has been an outstanding performer in the last decade due to its attractive yield and low correlation with other asset classes, Panayotov says.
BlackRock Core Bond Trust (BHK)
Conservative investors will appreciate this CEF populated with U.S. Treasurys, investment-grade corporate debt and a smattering of high-yield and foreign bonds. At least 75% of the portfolio is invested in investment-grade bonds. BHK’s bonds read like a list of stable concerns. Top debt holdings include Abbvie (ABBV), Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Northern Trust Corp. (NTRS). “BHK has been a solid performer over the years, and its future performance should benefit from the existing Federal Reserve facilities, which are buying investment-grade U.S. corporate bonds,” Panayotov says. Investors seeking a solution to the low interest rate environment might take a look at BHK. The only concern may be the fund’s fees.
PIMCO High Income Fund (PHK)
Another candidate for the list of best funds for income is this fixed-income CEF, which uses a dynamic asset-allocation strategy to choose fixed-income securities from various sectors. High current income is PHK’s focus, with capital appreciation as a secondary objective. The fund is permitted to invest in securities below investment grade, or “junk bonds.” Additionally, the fund can tap into the global fixed-income markets with up to 25% of total assets. PHK is diversified across industries including aerospace, financials and real estate. Yield-seeking investors who are willing to tolerate a degree of portfolio volatility might consider this fund from the well-regarded PIMCO family.
Seven of the best closed-end funds for investors:
— The India Fund (IFN)
— Voya Emerging Markets High Dividend Equity Fund (IHD)
— ASA Gold and Precious Metals Limited (ASA)
— Eaton Vance Limited Duration Income Fund (EVV)
— BlackRock Taxable Municipal Bond Trust (BBN)
— BlackRock Core Bond Trust (BHK)
— PIMCO High Income Fund (PHK)
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Update 06/22/21: This story was published at an earlier date and has been updated with new information.