Are you an income-seeking investor looking for new opportunities to enhance your yield? DoubleLine CEO Jeffrey Gundlach has highlighted a compelling option that may pique your interest – closed-end funds. But what exactly are closed-end funds and why should you consider them for your investment portfolio?
Closed-end funds are a type of investment vehicle that trade on public exchanges and have a fixed number of shares. This limited supply of shares can cause the share price to trade at a discount or premium to the fund’s net asset value. Additionally, many closed-end funds utilize leverage, which can increase volatility but also lead to higher returns.
One reason why closed-end funds may be enticing right now is due to the discounts they are currently trading at. This discount can be attributed to factors such as spikes in bond yields, which negatively impact the prices of bond holdings within the fund. For example, closed-end funds holding municipal bonds, like the Abrdn National Municipal Income Fund (VFL) and the Eaton Vance California Municipal Income Trust (CEV), are currently trading at discounts and offering attractive distribution rates.
However, it’s important to exercise caution when investing in closed-end funds. While high distribution rates may seem appealing, they could be a red flag if the fund’s net asset value is declining. Additionally, be aware of fees associated with closed-end funds, as higher expense ratios can eat into your returns over time. And don’t forget about the use of leverage, which can boost returns but also magnify losses in a volatile market.
At Extreme Investor Network, we understand the ins and outs of closed-end funds and can help guide you in making informed investment decisions. Keep an eye on our blog for more insights and tips on how to navigate the world of investing and achieve your financial goals. Happy investing!
