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 ESG Capital Allocation Term Trust (ticker: ECAT) | 22.5% |
| BlackRock Multi-Sector Income Trust (BIT) | 10.4% |
| Advent Convertible and Income Fund (AVK) | 11.7% |
| abrdn Healthcare Investors (HQH) | 15.2% |
| Eaton Vance Enhanced Equity Income (EOI) | 8.2% |
*As of June 26.
BlackRock ESG Capital Allocation Term Trust (ECAT)
Starting off strong, this closed-end fund proves you can invest responsibly and profitably without taking on excessive risk.
ECAT invests in equities and debt securities, 80% of which must meet environmental, social and governance (ESG) criteria. And it does so while providing an impressive 22.5% distribution rate.
Perhaps most impressive of all is that it manages this high distribution rate without excessive leverage. Unlike other funds on this list, ECAT has a leverage ratio of only 0.25% from writing options to generate income. This helps increase the fund’s risk-adjusted returns.
As an added bonus, the fund is currently trading at around a 3.4% discount to its NAV.
BlackRock Multi-Sector Income Trust (BIT)
Another BlackRock CEF to consider is the Multi-Sector Income Fund. It’s paying a tidy 10.3% yield and trading at only a slight premium.
However, to provide this high distribution rate, the fund has a leverage ratio of nearly 38%. In other words, it uses 38 cents of borrowed money for each dollar of investment.
You get a nicely diversified mix of fixed-income assets here. Though the portfolio is predominantly corporate bonds and securitized debt, there’s also a few government and municipal bonds. This helps it maintain a “moderate” risk rating from Morningstar.
Advent Convertible and Income Fund (AVK)
Another high-yielding closed-end fund Conners recommends is the Advent Convertible and Income Fund. Like BIT, it offers double-digit yields, but unlike BIT, it’s currently trading at around a 4.5% discount to its NAV. The fund is leveraged at nearly 37%, which puts it into Morningstar’s “aggressive” category.
The portfolio is mostly corporate bonds, nearly half of which are convertible. Convertible bonds can be converted to the company’s common stock, giving them features of both stocks and bonds. Typically, these securities have higher yields than standard bonds, but lower volatility than stocks.
abrdn Healthcare Investors (HQH)
If you’re a true bargain shopper, HQH may be the fund for you. It’s trading at more than a 9% discount to NAV, all while paying over a 15% distribution rate and offering a moderate 1.12% expense ratio.
As the name suggests, HQH invests primarily in health care companies. Its portfolio of more than 100 stocks includes perhaps familiar top dividend stocks names like Gilead Sciences Inc. (GILD) and UnitedHealth Group Inc. (UNH).
Eaton Vance Enhanced Equity Income (EOI)
The Eaton Vance Enhanced Equity Income 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 58 stocks, including the all-too-familiar Microsoft Corp. (MSFT), Nvidia Corp. (NVDA) 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.
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5 Best Closed-End Funds for 2025 originally appeared on usnews.com
Update 06/27/25: This story was published at an earlier date and has been updated with new information.
