Exchange-traded funds, or ETFs, are popular these days, but closed-end funds, or CEFs, can be a great option for investors seeking income as well.
Like stocks, CEFs debut via an initial public offering, or IPO, where the fund manager issues a fixed quantity of shares. These shares can track a variety of underlying assets, including equities, fixed income, commodities and even cryptocurrencies. Once issued, the shares then trade on the secondary market between individual investors.
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However, unlike ETFs, CEFs will not accept additional inflows of capital or issue new shares after the IPO. Therefore, depending on supply and demand, the share price of a CEF can diverge from its net asset value, or NAV, and trade at a premium or a discount.
Like ETFs, CEFs also make periodic distributions, which can consist of dividends, ordinary income, capital gains and return of capital.
That’s not to say closed-end funds don’t come with risks, which are often more significant than people realize. They can have high management fees that erode returns and use derivative strategies that increase complexity.
The fact that closed-end funds trade like stocks with the share price a function of supply and demand, rather than NAV, could also expose investors to the risk of not being able to find a willing buyer or having to sell at a discount.
You’ll want to pay close attention to the size of the fund before investing. “If the fund is too small, it may pose liquidity issues,” says Steven Conners, founder and president of Conners Wealth Management. He gives the example of some smaller closed-end funds that trade under 10,000 to 15,000 shares per day.
“This causes a widening of the buying and selling price in the market,” he says. “Contrast this to some of the larger closed-end funds, and many trade hundreds of thousands of shares each day (and) have typically only a 1-cent spread between what a buyer or a seller pays.”
With that in mind, here are five of the best closed-end funds to buy in 2025:
| Closed-End Fund | Distribution Rate* |
| BlackRock Multi-Sector Income Trust (ticker: BIT) | 10.4% |
| Advent Convertible and Income Fund (AVK) | 11.9% |
| Tortoise Sustainable and Social Impact Term Fund (TEAF) | 9.1% |
| Eaton Vance Tax-Advantaged Global Dividend Income Fund (ETG) | 8.5% |
| Eaton Vance Enhanced Equity Income (EOI) | 7.7% |
*As of Dec. 19.
BlackRock Multi-Sector Income Trust (BIT)
If it’s yield you’re after, look no further than the BlackRock Multi-Sector Income Fund. It’s currently paying double-digit yields and trading at a 1.3% discount to its NAV.
To provide this high distribution rate, the fund has a leverage ratio of 35%, however. In other words, it uses 35 cents of borrowed money for each dollar of investment.
“This has been expensive over the past two years given how high borrowing costs have been at the short end of the U.S. yield curve,” Conners says. “With the Fed having started its rate cutting regime, I believe the fund will benefit from reduced borrowing costs in 2025.”
You get a nicely diversified mix of fixed-income assets, he adds. Though the portfolio is predominantly corporate bonds and securitized debt, there’s also a few government and municipal bonds. There are even a few foreign bonds thrown into the mix.
Advent Convertible and Income Fund (AVK)
Another high-yielding closed-end fund Conners recommends is the Advent Convertible & Income Fund. Like BIT, it offers double-digit yields, but unlike BIT, it’s currently trading at around a 3.2% discount to its NAV.
It’s also leveraged at 36%, so it “will benefit as the Federal Reserve continues to reduce borrowing costs,” Conners says. “If the Fed were to put the rate-cutting campaign on hold, performance will still be favorable looking at the last two years’ price action of the shares.”
The portfolio is mostly corporate bonds, many of which are convertible. “Convertible bonds are more correlated to equity prices than the U.S. Treasury market given that the bonds can be converted to the company’s common stock,” Conners says. “This is beneficial if inflation remains stubborn before reaching the Fed’s 2% target rate.”
[READ: 7 Best International Dividend Stocks for Diversification]
Tortoise Sustainable and Social Impact Term Fund (TEAF)
If you prefer to abide by the buying-at-a-discount rule, TEAF may be the closed-end fund for you. Currently trading at a 13.5% discount, you can feel confident you’re getting a good deal here.
The problem with CEFs that trade at steep discounts is that they may not come out of the discount rut by the time you want to sell. Finite term CEFs resolve this issue by establishing dates at which they will liquidate. TEAF is designed to liquidate 12 years from the effective date of its initial registration statement, which will happen by the end of the decade. The board of directors may vote to extend TEAF’s life by one more year, but investors are guaranteed their money back by the 13th year.
In the meantime, TEAF pays a monthly distribution at a rate of nearly 9%. And it comes with the added bonus of social responsibility in that it seeks to make a positive social, environmental and economic impact through the companies it invests in.
Eaton Vance Tax-Advantaged Global Dividend Income Fund (ETG)
A downside with income-producing investments can be the tax bill that comes with them. With CEFs, this can get particularly painful, as you may get distributions from a variety of sources within the fund, each of which is taxed differently.
The Eaton Vance Tax-Advantaged Global Dividend Income Fund aims to make this aspect of your life easier by providing income that qualifies for more favorable federal tax rates. Currently, that means holding familiar dividend-paying names such as Microsoft Corp. (MSFT), Nvidia Corp. (NVDA) and Google’s parent company, Alphabet Inc. (GOOG), along with a mix of investment and non-investment-grade debt.
It pays a monthly distribution at a current rate of about 8% and is trading at a 9.9% discount to NAV.
Eaton Vance Enhanced Equity Income (EOI)
With the Fed cutting rates, funds with an income focus could be helpful in bolstering returns. One such fund is the Eaton Vance Enhanced Equity Income, which focuses on income first and capital appreciation second. It accomplishes this by investing in mid- and large-cap stocks the managers believe have above-average financial strength and growth.
EOI holds 53 stocks, including the all-too-familiar Microsoft, Nvidia and Apple Inc. (AAPL). These are paired with covered calls written on the stocks in the portfolio to generate extra income with minimal additional risk. It pays a monthly distribution.
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5 Best Closed-End Funds for 2025 originally appeared on usnews.com
Update 12/20/24: This story was published at an earlier date and has been updated with new information.
