Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Beat Ben Bernanke's Zero Rates with These Juicy Double-Digit Yields

Portfolio / Investing 2012 Jun 26, 2012 - 07:06 AM GMT

By: Money_Morning

Portfolio

Best Financial Markets Analysis ArticleMartin Hutchinson writes: With the economy beginning to stall, Ben Bernanke's war on the nation's savers rolls on.

From his promise to keep the Fed funds rate near zero through late 2014 to his efforts to push ten-year note yields even lower, the Fed Chairman is a saver's worst nightmare.


You see, in Ben's world, the safety of money in the bank earning a reasonable interest rate is a dangerous thing.

It's why folks with savings have been virtually forced into the market these days in search of higher yields.

One place where income investors can find them is in closed-end funds.

A few of these funds even pay juicy double-digit yields -- like the one my Permanent Wealth Investor subscribers have earned 20% on in two years.

But here's the best part. You can actually buy closed-end funds like these on sale.

Let me explain.

Buying Closed-End Funds at a Discount
Developed in the 19th century, closed-end funds are the oldest type of mutual fund. If you understand the idea behind a mutual fund, then understanding a closed-end fund is easy.

In essence, they are the same thing- pools of money controlled by a professional money manager.

However, in contrast, a typical mutual fund is also what's known as an open-ended fund.

This means that the fund itself can issue as many shares as it needs to meet the demand on any given day. So the total number of shares in this type of fund isn't fixed at all-hence the term open ended. Shares are added as needed.

As a result, the cost of any share in one of these funds is always bought or sold at its current Net Asset Value (NAV). That's why shares of open-end funds don't trade per se on the exchanges.

A closed-end fund, on the other hand, is totally different. Unlike an open-ended fund, closed-end funds issue a limited number of shares. That means the number of shares outstanding is fixed.

So closed-end funds actually trade on an exchange like a stock, and are bought or sold minute-by-minute with a price driven by market sentiment.

That means that just like a stock, shares may trade at a premium or discount to their net asset value. That's a key difference, and why I say closed-end funds can be bought on sale.

In fact, the typical closed-end fund trades at anywhere from a 2% to 10% discount to its net asset value.

However, just like mutual funds, closed-end funds invest in a portfolio of shares or bonds according to the fund's stated objectives. They can also use leverage and invest in private equity. While they generally pay out dividends as received on the underlying investments, they are not obliged to do so.

Closed-end fund managers also use a number of strategies to prevent their funds from trading too far below net asset value (which leaves them vulnerable to a takeover). Paying out dividends is one way to achieve this, which is why closed-end funds often achieve a high dividend payout or yield.

How to Choose Closed-End Funds
These come in several different types, some of which have hidden risks attached, so I'd like to provide you with a guide through this investing jungle.

Primarily, the ones with high dividend yields are of four types. They include:

•Dividend harvest funds: These funds buy shares in companies that are about to pay a dividend, and then sell the stock after the dividend is paid. By doing this, they can rotate through companies with different payment dates, and thereby achieve a high dividend payout. The problem is that shares generally trade lower after a dividend is paid, by the amount of the dividend. Two funds of this type, the Alpine Global Dividend Fund (NYSE:AGD) and the Alpine Dynamic Dividend Fund (NYSE:AOD), have seen their net asset value decline substantially since their inception. For us as investors, that's generally not attractive, since we are getting taxable dividends at the cost of a capital loss.
•Leveraged funds: These funds achieve their high dividend by leverage and investing in shares or bonds whose yields exceed the cost of the leverage. A very popular type of this fund in recent years has been the mortgage REIT, such as American Capital Agency (Nasdaq: AGNC) and Annaly Capital (Nasdaq: NLY); both have dividends of 14.9% and 13%. The problem with these is that when interest rates rise, the price of the mortgages declines and their funding costs rise, so most of the income disappears and the funds have a capital loss. Similarly, funds achieving the same effect by leveraged investing in stocks have much more risk in a bear market. Still AGNC and NLY have between them $26 billion of market capitalization, so their marketing strategy works even if their investment model fails in the long run.
•Option-income funds: These funds buy shares and sell call options, paying out the call-option premiums they receive as income. By definition, the net asset value of these funds normally underperforms the market indices, since shares are called away from them in bull markets. However, on an overall basis, skillful management can enable the funds to provide a total return, including dividends and capital returns, which is at least competitive. The Eaton Vance Tax-Managed Buy-Write Income Fund (NYSE: ETB), currently makes a quarterly payout of 32.4 cents/share, giving it a yield of just under 10%. What's more, it's currently trading at about 11% below net asset value. For me, it's always attractive to buy $100 of assets for $89.
•International unleveraged funds: Finally, there are a few international closed-end funds, normally invested in single-country markets. They provide support to their share prices simply by paying out a percentage of net asset value each quarter, even though only part of the payout is covered by dividends. Provided the market in which the funds invest is growing satisfactorily and is not overpriced (so dividends are a substantial part of the payout) these funds can maintain their net asset values as well as making good payouts. For example, the Aberdeen Chile Fund (NYSE: CH) is the one I mentioned earlier as being part of my Permanent Wealth Investor portfolio. It invests in one of the world's premier growth markets and currently makes quarterly payouts at a rate of 10% of net asset value per annum.

So keep in mind there's more than one way to beat Ben Bernanke at this game. The right closed-end fund can give you both a decent yield and decent growth prospects.

Good Investing,

Martin Hutchinson, Editor
Permanent Wealth Investor

Source :http://moneymorning.com/2012/06/26/beat-ben-bernanke-with-these-juicy-double-digit-yields/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in