Another interesting closed-end fund to consider is the BlackRock Resources & Commodities Fund (NYSE:BCX). This fund also operates without leverage, but does use derivatives or commodity trading on top of its equity allocations. Although this closed-end fund has lagged the market considerably year-to-date with just 5% returns, it is trading at a 6% discount to NAV. It also boasts a 10% yield based on quarterly distributions of 35 cents — but could deliver even bigger dividends considering the payday of 66 cents last December. Underlying assets include fertilizer company Potash (NYSE:POT), metals giant Silver Wheaton (NYSE:SLW) and agricultural stock Monsanto (NYSE:MON).
The Dow 30 Enhanced Premium & Income Fund (NYSE:DPO) is operated by Nuveen Investments and trades for a 5% discount to its NAV right now. Like the others, it does not use leverage to achieve its returns — but still boasts a 7.9% yield based on 21.8 cents a quarter in distributions. Top holdings include, unsurprisingly, Dow stocks IBM (NYSE:IBM), Chevron (NYSE:CVX) and This “enhanced” Dow fund also dabbles in other megacaps, however, as well as swap contracts to amplify returns. The fund is rated four stars by Morningstar. DPO is up 9% year-to-date, which has outperformed the Dow.
2 High-Yield Closed-End Funds That Focus on Bonds
If you want to play high-yield bonds in the closed-end fund arena, here are two options for you. These funds do use leverage to juice returns:
Trading at an 8% discount to its current net asset value is Helios Strategic Income Fund (NYSE:HSA). The fund is up 14% year-to-date in 2012, and offers an impressive 6.7% yield based on monthly distributions of 3.5 cents and a rock-bottom share price just north of $6 at current writing — and it was leveraged about 28%. Top holdings include a 7.75% corporate bond for Anheuser-Busch InBev (NYSE:BUD) and a 5.7% bond for Dow Chemical (NYSE:DOW).
Be warned, however, that HSA can dabble in “below-investment-grade debt securities” — also known as junk bonds — as well as mortgage-backed securities, foreign government obligations and companies in bankruptcy reorganization proceedings or other debt restructuring. These can be risky propositions.
The NexPoint Credit Strategies Fund (NYSE:HCF) is another bond fund that uses leverage, to the tune of around 27% right now. It focuses on floating and fixed-rate loans and distressed/bankrupt corporate obligations to generate a 6.4% yield based on monthly payouts of 3.5 cents a share. As with Helios Strategic Income, these underlying debt instruments can be risky — but the yield is impressive. Shares of HCF are up just under 7% year-to-date, and holdings include loans to Genesys Ventures and Comcorp Broadcasting.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.