October 3, 2023

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Bull or Bear? who cares when we can collect Dividend between 10.1% and 11.8%,

That’s not a typo. The S&P 500 pays 1.7%. The 10-year Treasury yields two points more at 3.7%.

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It’s better — but it’s not 11.8%!

That same million-dollar retirement portfolio could generate $17,000, $37,000 or $118,000 per year. Tough Choice!

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And better yet, the double-digit dividends I mentioned aren’t penny stocks. We’re talking diversified funds, with dozens of holdings, that are managed by skilled advisors who often have decades of experience.

How do you spell “huge income”? CEF.

A a few weeks agoWe discussed CEF vs ETF:

“If I could give you just one piece of advice to start 2023, it’s this: Don’t trust your dividend income to ETFs!”

The reason is pretty clear: Most ETFs are index funds, and many index funds are run by regulations that force them to fight with one hand behind their backs. the example i gave was AT&T

What dragged down the popular dividend ETF ProShares S&P 500 Dividend Aristocrats ETF (NOBL

For years

But, you ask: “AT&T put up warning signs for years.” Why didn’t Nobel drop it?

This could not happen. NOBL has been forced to own the Dividend Aristocrats. So it held on and held AT&T until it was finally dethroned.

But closed-end funds (CEFs) don’t have that problem — and they have a lot to love to boot.

Closed-end funds are similar to mutual funds and exchange-traded funds in that they allow you to hold dozens or hundreds of assets in a single product, helping you to spread your risk.

Like ETFs, they trade on major exchanges, but virtually all of them are actively managed, meaning that if they see future trouble for any of their holdings, they can dump them. . It’s that simple.

But what makes them special is that…

  • They can trade at a deep discount to their own Net Asset Value (NAV): ETFs have a creation/redemption mechanism that basically ensures that they always trade fairly close to their net asset value. CEFs don’t: When they go public, they have an initial public offering, so they trade with a fixed number of shares. So sometimes, CEF prices are out of sync with their NAVs—sometimes they’re more expensive (avoid buying them!), but sometimes they’re cheaper, allowing you to trade for 90 cents. Dollars can buy property. Dollar.
  • They can use leverage. With mutual funds and ETFs, what you see is what you get. If one of those funds has $1 billion in assets to play with, it invests up to $1 billion, and that’s it. But closed-end funds can actually use debt leverage to buy more than their assets allow. Therefore, a $1 billion CEF can use 30% leverage, allowing it to invest $1.3 billion in carefully chosen selections by its managers. CEFs can potentially juice both returns and payouts with this leverage – although, conversely, it can magnify losses during downturns.
  • He has other tricks too. CEFs may also use other strategies, such as trading options within the portfolio, to further generate income and enhance returns.

Result? Super-high-yields aren’t an outlier in the CEF community – they’re the norm!

And five funds have come under my radar recently, both with skyrocketing yields of 11.8%. Once again, that’s $118,000 per year on a million dollar investment!—plus a huge discount to NAV. This potential for deep value warrants a closer look…

chuck’s fund

First is the eye opener of CEF. This is a fund that seeks value among the smallest stocks in the market. Sounds crazy, but 29-year-old manager Chuck Royce himself says it’s the goal. Royce Micro-Cap Trust (RMT, 11.7% Distribution Rate),

“Our job is to scour the large and diverse universe of micro-cap companies for businesses that look to be mispriced and undervalued, with the caveat that they must also have a clear margin of safety. Looking for stocks trading at a discount to our estimate of value.

I’ll say this: Micro-cap holdings don’t He Smaller, averaging about $650 million in market cap, so RMT is more of a small-cap than a micro-cap. Yet, these are far from everyday names. top holding Transcat (TRNS)For example, provides calibration services; Cercor International (CIR) Specializes in pump and valve systems.

Chuck isn’t flipping names, either, looking for the next rocket ship to the moon — turnover is a modest 26%. He is buying. And he’s catching up.

But his strategy works, and he’s not afraid to let people know about it. Most fund provider pages shamelessly paste a performance chart or two and hope you see how well they have done. Chuck no. Chuck will tell you:

“Russell 2000, Year to Date, 1-Year, 3-Year, 5-Year, 10-Year, 15-Year, 20-Year and Period Since Inception (12/14/93) for Quarterly 12/ 31/22. trailed Russell MicroCap for the Quarterly, Year to Date, 1-Year, 3-Year, 5-Year, 10-Year, 15-Year and 20-Year Periods through 12/31/22.

Believe it or not, RMT is a bit “excessive” right now. Yes, it trades at a 10% discount to NAV, but that’s not out of the ordinary — in fact, its five-year historical average discount is actually higher, closer to 12%.

a hedged closed-end fund

Calamos Long/Short Equity & Dynamic Income Trust (CPZ, 10.1% Distribution Rate) Very, very different strategy. It is not a longs-only fund, nor is it an equity-only fund.

Instead, Calamos seeks to deliver hedged market exposure through a long/short equity strategy that includes multiple assets—particularly preferred and fixed income, which helps increase its monthly distributions.

Currently, for example, CPZ has about 70% of its assets invested in long/short common equity trades (and is currently net long, at 31%). Another 15% is devoted to preferred, and the remainder sits in bonds. Management is particularly bullish on industries, which make up about a third of its entire long exposure.

This Calamos fund went public in late 2019, so it doesn’t have a track record. But naturally, you’d expect it to flourish in the fall and lag during recovery — and that’s largely true. Well, CPZ has outperformed during the current bear market, but it has lagged during the COVID bear, and that, coupled with the expected drag during the uptrend, has significantly underperformed in its short life so far.

It’s trading at a slight discount to NAV compared to its three-year average, but CPZ really only makes sense if you expect a prolonged period of market declines — and even then, it hardly does. There is no guarantee.

3 Future Oriented Equity Funds

The next three funds are not carbon copies of each other, but they are all dedicated to different technological and other innovative trends. And they all not only yield 10% or more, but like CPZ, they pay monthlyWhich is catnip for income investors like you and me.

  • BlackRock Health Sciences Trust II (BMEZ, 10.7% distribution rate): It’s largely a biotechnology and health-sciences fund that likes Vertex Pharmaceuticals

    , racemade

    And Penumbra (PEN), It’s trading at a nearly 15% discount to NAV that’s much deeper than its 9% three-year average, it uses minimal leverage, and it engages in option writing to generate income.
  • BlackRock Innovation & Growth Trust (BIGZ, 11.2% distribution rate): BIGZ deals primarily in mid- and small-cap companies that are leaders in their industry. This often includes tech stocks such as cloud contact center software providers Five 9 (FIVN)but also names like advanced materials firm Integrated

    and jim chen planet health

    , It also trades at a deep discount of 21% to NAV. Compared to its 1 year average of 17% – The fund went public in March 2021. It is also low on leverage, and it engages in option writing.
  • Neuberger Berman Next Generation Connectivity Fund (NBXG, 11.6% distribution rate): As you can guess from the name, this NB closed-end fund holds equities that deals in next-generation mobile network connectivity and technology. For now, this largely consists of 5G—until it becomes 6G, 7G, etc. Top holdings include chipmakers analog device

    Electronics Test and Measurement Specialist Keysight Technologies

    the keys
    And Amphenol

    , which deals in cables, sensors, antennas and fiber-optic connectors. And this will sound familiar: NBXG has an average discount to NAV of about 20%, it doesn’t use a lot of leverage, and it also uses options.

All three of these CEFs have significant bull market potential for high-growth stocks that harness many of today’s hottest emerging trends. And they allow investors to harness that potential while enjoying fat, monthly yields.

Unfortunately, all three of these funds are young, and in their short lives, they’ve been known mostly for bear markets and tough times for tech and tech-esque stocks.

As I said just two days ago, Tech and other high-growth stocks won’t bottom out until rates top out, I’m not sure they have them now.

But get ready. We will get a better opportunity to buy this type of fund at a better price later this year. When rates top out, P/Es crater and None Anyone other than calculated income investors like us want to own these things.

Bret Owens Chief Investment Strategist opposite point of view, For more great income ideas, get your free copy of their latest special report: Your Early Retirement Portfolio: Huge Dividends—Every Month—Forever,

Disclosure: none

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