Many investors are making the right choice to build their core portfolios around low-cost, liquid and diversified exchange-traded funds (ETFs) geared towards dividend paying stocks and bonds. These funds provide transparent exposure to a broad range of asset classes without the drag of high expenses.
While this core exposure is important, there may also be a desire to diversify your holdings towards alternative investment styles with a penchant for higher yields. This is the foremost objective behind ETFs that invest in a basket of closed-end funds (CEFs).
Closed-end funds offer varying risk dynamics compared to traditional ETFs. They are pooled investment vehicles with set share amounts that can trade at a premium or discount to their underlying net asset value.
Furthermore, they often employ leverage, options and other sophisticated portfolio management techniques to boost their yields for shareholders.
The menu of available funds to choose from in the income-investing world is significant. So much so that selecting the most appropriate funds for your portfolio can be an overwhelming task. Particularly when you are trying to balance the right mix of quality and credit-sensitive investments to form a sensible strategy without taking too much risk. It’s always worth remembering that higher yields also encumber a higher risk of invested capital.
The following are five dedicated ETFs that invest in a broad range of CEFs for those investors that want to enhance the yield of their portfolio or seek out varying asset classes.
These ETFs of closed-end funds are not for everyone and will be most appropriate as small, tactical positions within a more diversified income portfolio. Their benefits will be felt most strongly in a credit-friendly environment with rising stock and high-yield bond prices.