When the Federal Reserve began its Taper Talk last year, it seemed that investors fled anything that was paying a high yield. From real estate investment trusts (REITs) to master limited partnerships (MLPs), any sector that has been a major source of income over the last few years was now considered dead money … even if the sector isn’t historically affected by rising interest rates.
All of this panic provides plenty of bargain shopping deals for those investors with more level heads. And in this case I’m talking about the often-ignored world of closed-end funds (CEFs).
Unlike exchange-traded funds (ETFs) and mutual funds — which have a creation and redemption mechanisms — CEFs trade on the equities markets with a fixed number of shares. After their IPO’s, CEFs can and often do trade for discounts to their net asset values (NAV), allowing investors to pick up stocks and bonds for pennies on the dollar.
For example, if a CEF is trading at a 10% discount to its NAV, you effectively get a dollar’s worth of assets for 90 cents. And given the Fed’s taper tantrum, many CEFs are now trading at huge discounts to their intrinsic values not seen since the depths of the credit crisis.
Perhaps more importantly for income seekers, due to the use of leverage, many CEFs pay above-average dividends — to the tune of 5 to 8%. Here are some of the best bargains in CEFs today.