Skip to headerSkip to main contentSkip to footer
Get our Free E-newslettersGet our Free E-newsletters
Kiplinger logoLink to homepage
Get our Free E-newslettersGet our Free E-newsletters
Subscribe to Kiplinger
Subscribe to Kiplinger
Save up to 76%
Subscribe
Subscribe to Kiplinger
  • Store
  • Home
  • Investing
  • Retirement
  • Taxes
  • Personal Finance
  • Your Business
  • Wealth Creation
  • More
    • Podcasts
    • Economic Outlooks
    • Tools
  • My Kiplinger
    • Kiplinger's Personal Finance Magazine
    • The Kiplinger Letter
    • The Kiplinger Tax Letter
    • Kiplinger's Investing for Income
    • Kiplinger's Retirement Report
    • Store
    • Manage My E-Newsletters
    • My Subscriptions
  • Home
  • investing
investing

4 Closed-End Funds with Sky-High Yields

With robust yields and share prices trading at a discount to the value of their investment portfolios, these four closed-end funds are worth exploring now.

by: Ryan Ermey
February 1, 2018

This content is subject to copyright.

With robust yields and share prices trading at a discount to the value of their investment portfolios, these four closed-end funds are worth exploring now. For more about how closed-end funds work (and can add juicy payouts to your portfolio), check out Earn Up to 9% With These Funds

  • The 50 Best Stocks of All Time
Funds are listed alphabetically. Prices and other data are through January 12. Distribution rate is based on share price, and expense ratios include borrowing costs. Source: Morningstar Inc.

1 of 4

Ares Dynamic Credit Allocation Fund

  • Discount to Net Asset Value 9.5%
  • 1-Year Total Annualized Return 16.5%
  • 3-Year Total Annualized Return 9.7%
  • Distribution Rate 7.8%
  • Expense Ratio 2.90%
  • Ares Dynamic Credit Allocation Fund (ARDC, $16) holds a mix of floating-rate loans, relatively risky junk bonds and other types of debt. The fund’s 31% leverage would exacerbate losses in the case of a junk-bond sell-off. But a thriving economy lessens the risk of junk issuers defaulting, and floating-rate loans, which make up the lion’s share of the portfolio, should benefit as interest rates rise because these notes are pegged to short-term benchmarks that reset every 30 to 90 days.

The fund’s 9.5% discount to NAV is less than its historical average but still 3.1 percentage points greater than that of the average bank loan–focused bond fund. Over the past five years, the fund’s return (including distributions) has outpaced 96% of similar closed-end funds.

 

  • 10 Top Stocks From President Trump's First Year

2 of 4

Blackrock Science & Technology Trust

  • Discount to Net Asset Value 1.8%
  • 1-Year Total Annualized Return 61.6%
  • 3-Year Total Annualized Return 24.6%
  • Distribution Rate 5.4%
  • Expense Ratio 1.10%

Consider Blackrock Science & Technology Trust (BST, $29) if you’re a fan of tech stocks but would appreciate fatter yields. The fund doesn’t use debt or preferred shares to boost its 5.4% distribution rate, which is modest for a CEF but more than the 1.3% average dividend yield for tech shares. Instead, it follows a covered call strategy, selling call options on stocks in the portfolio that give the buyer the right to purchase a stock at a set price over a certain time period. The fund collects premiums on the options it sells, which bolsters the yield of the underlying portfolio.

Top holdings include Apple, Alphabet, Microsoft and Amazon.com. The fund’s 1.8% discount makes it a touch more expensive than the average fund that employs a covered call strategy.

 

  • 10 Preferred Stock Funds for Safe, Substantial Yields

3 of 4

Cohen & Steers Quality Income Realty Trust

  • Discount to Net Asset Value 7.3%
  • 1-Year Total Annualized Return 1.5%
  • 3-Year Total Annualized Return 6.8%
  • Distribution Rate 8.1%
  • Expense Ratio 1.81%

Real estate investment trusts (REITs) have been popular among income investors, but fears are mounting that rising interest rates could eat into yields as real estate owners pay more to finance their properties. Those concerns have driven REIT CEF discounts deeper recently, creating bargains.

  • Cohen & Steers Quality Income Realty Trust (RQI, $12) is selling at at 7.3% discount to NAV, more expensive than the three-year average discount of 9.8% but only one-half of a percentage point more expensive than the average real estate CEF. The fund is 23.9% leveraged, enough to sting if REITs take an ugly turn.

 

  • Consider Alternative Funds to Hedge Against a Market Downturn

4 of 4

Kayne Anderson Energy Development

  • Discount to Net Asset Value 7.0%
  • 1-Year Total Annualized Return 3.5%
  • 3-Year Total Annualized Return -8.8%
  • Distribution Rate 8.1%
  • Expense Ratio 4.40%

Stabilizing oil prices, which have risen nearly 50% from their June 2017 lows, are good news for energy-focused master limited partnerships (MLPs) and the CEFs that own them. Such CEFs offer an opportunity to squeeze extra yield out of an already high-yielding asset class. Kayne Anderson Energy Development (KED, $18) concentrates on conservative MLPs—those that essentially collect a toll on oil or gas flowing through pipelines—and limits MLPs involved in the riskier business of oil and gas exploration.

The fund trades at a 7% discount, 3.7 percentage points cheaper than its average peer. It is 32% leveraged; as a result, the fund will face magnified losses if, say, oil prices tumble again.

 

  • 10 Top Funds for a 2018 Gusher in Energy Stocks
  • mutual funds
  • investing
Share via EmailShare on FacebookShare on TwitterShare on LinkedIn

Recommended

T. Rowe Price Financial Services Banks on a Turnaround
Stock Market Today

T. Rowe Price Financial Services Banks on a Turnaround

This fund is a good way to bet on an economic rebound.
February 24, 2021
DSTL: A Value Fund With a Twist
Becoming an Investor

DSTL: A Value Fund With a Twist

The fund’s 51.3% return since its inception in 2018 has more than tripled that of traditional value funds.
February 24, 2021
2 Top-Tier T. Rowe Price Mutual Funds
mutual funds

2 Top-Tier T. Rowe Price Mutual Funds

T. Rowe Price's mutual funds typically stand out among their peers, but these two selections provide elite equity and bond exposure for this point in …
February 24, 2021
Earth-First Funds Are Soaring
Markets

Earth-First Funds Are Soaring

Funds with sustainability in mind are super popular these days; these six are ready to deliver returns.
February 24, 2021

Most Popular

Senate Passes $3,000 Child Tax Credit for 2021
Coronavirus and Your Money

Senate Passes $3,000 Child Tax Credit for 2021

The provision would temporarily increase the child tax credit to $3,000 or $3,600 per child for most families and have 50% of it paid in advance by th…
March 6, 2021
Senate Passes Bill with More "Targeted" Stimulus Payments
Coronavirus and Your Money

Senate Passes Bill with More "Targeted" Stimulus Payments

The Senate finally passes the $1.9 trillion COVID-relief bill. But fewer people will get a third stimulus check under the Senate version than under th…
March 6, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
  • Customer Service
  • About Us
  • Advertise With Us (PDF)
  • Privacy Policy
  • Cookie Policy
  • Kiplinger Careers
  • Accessibility
  • Privacy Preferences

Subscribe to Kiplinger's Personal Finance

Be a smarter, better informed investor.
Save up to 76%Subscribe to Kiplinger's Personal Finance
Dennis Publishing Ltd logoLink to Dennis Publishing Ltd website
Do Not Sell My Information

The Kiplinger Washington Editors, Inc., is part of the Dennis Publishing Ltd. Group.
All Contents © 2021, The Kiplinger Washington Editors

Follow us on InstagramFollow us on FacebookFollow us on TwitterConnect on LinkedInConnect on YouTube