The 10 Best Closed-End Funds (CEFs) for 2022

These high-yielding CEFs won't just significantly boost your portfolio income. They'll also allow you to buy their underlying stocks and bonds at a discount.

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If someone offered to sell you a dollar for 90 cents … well, you'd probably think it was too good to be true. Yet these are exactly the kinds of opportunities that arise in the market's best closed-end funds (CEFs).

CEFs are a type of investment fund, and in fact, they are older than mutual funds. The very first closed-end fund was launched in 1893 – more than 30 years before the first traditional mutual funds (like those you might find in your 401(k) plan) were created.

As with their mutual fund cousins, CEFs are pooled investment vehicles that hold portfolios of stocks, bonds or other assets. But that's where the similarities stop.

Mutual funds are open-ended. When you want to invest, you or your broker sends cash to the fund, and the manager takes that fresh cash and uses it to buy assets. When you want to sell, the manager will sell a small amount of assets to cash you out. Money is always coming and going, and there's no hypothetical limit to the amount of new money a popular fund can take in and invest.

Closed-end funds are different. CEFs have initial public offerings (IPOs) like stocks, and there is a fixed number of shares that then trade on the stock market. If you want to buy shares, you buy them the same way you'd buy a stock.

And here's where the fun starts. CEF prices are set by the market the same way a share of Apple (AAPL (opens in new tab)) or Amazon.com (AMZN (opens in new tab)) would be, but that price can vary wildly from the value of the assets the fund holds. It's not uncommon to see CEFs trading at a premium to the value of the assets they own. But just as you'd never pay $1.10 for a dollar, you're generally better off avoiding CEFs trading a premium.

Discounts, however, are another story. Closed-end funds often sell at massive discounts to net asset value (NAV). In these cases, they're effectively worth more dead than alive!

Another nice aspect of CEFs is that, unlike mutual funds, they can use debt leverage to juice their returns. That same leverage also allows closed-end funds to sport some of the highest yields you're likely to find.

Today, we're going to take a look at the 10 best CEFs for 2022. Each of these funds trades at a reasonable discount to NAV and offers a yield that's at least competitive, if not downright extravagant.

Data is as of Jan. 11. Distribution rate is an annualized reflection of the most recent payout and is a standard measure for CEFs. Distributions can be a combination of dividends, interest income, realized capital gains and return of capital.

Charles Lewis Sizemore, CFA
Contributing Writer, Kiplinger.com

Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor based in Dallas, Texas, where he specializes in dividend-focused portfolios and in building alternative allocations with minimal correlation to the stock market.