Over the last year investing in high-yield, taxable closed-end funds has generally paid of with better than market average performance. The combination of a 7% or greater dividend yield and share price gains rewarded a lot of investors with returns in the high teens up to over 40%.
I use a spreadsheet to track 115 taxable closed-end funds that sport dividend yields greater than 6% and had more than about $200 million in assets when I put the spreadsheet together. The funds are divided into 12 categories - 6 equity, 5 debt and 1 multi-sector. I use the adjusted close share price from Yahoo Finance to calculate a total return from a selected date through the most recent trading day. Yahoo defines Adjusted Close as: "Close price adjusted for dividends and splits." The spreadsheet calculates a total return using the difference between the historic adjusted return and the most recent closing price.
For comparison purposes here are three popular ETFs covering the stock and bond markets with returns calculated using the same method for the same time frame:
- SPDR S&P 500 ETF (SPY): +15.7%
- iShares iBoxx Investment Grade Bond ETF (LQD): +8.1%
- SPDR Barclays High Yield Bond ETF (JNK): +11.5%
Compared the broad market results listed above, closed-end fund investors in most cases did quite well over the last 12 months. The median return for all of the funds in my database was 14.24%, significantly better than the two bond ETFs and not far behind SPY. The median for the equity CEFs was a slightly higher 14.9%, a number that lagged the results from SPY.
Bond or debt CEFs produced across the board positive results with the 10-month old PIMCO Dynamic Income Fund (PDI) leading the pack with a 30.7% gain and at the other end several bond funds matched 9% yields with a couple of percent share price drops to end up with about a 7% total return for the period.
No discussion of closed-end funds would be complete without a few words on share price to NAV premiums and discounts. The funds that made the top of each category generally experienced having the price/NAV discount shrink by 3% to 4% or the premium expanded by a similar percentage. Outside of the best performing funds, there was, in most cases, no changes in the premium or discount that had a material affect on the return.
Equity Winners of Note
First up are the top performing funds from the different categories - in italics - of equity focused closed-end funds. I include the multi-sector funds in this bunch:
U.S. Equity Funds
- The Gabelli Equity Trust Inc. (GAB): +29.2%
- Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO): +28.1%
- The Gabelli Dividend & Income Trust (GDV): +25.3%
- John Hancock Tax- Advantaged Dividend Income (HTD): +25.3%
- Cohen & Steers Infrastructure Fund, Inc. (UTF): +32.4%
- PIMCO Income Strategy Fund II (PFN): +26.1%
- The Mexico Fund, Inc. +49.6%
- Alpine Global Premier Properties Fund (AWP): +40.6%
Bond Closed-End Winners
Limited Term Debt
- BlackRock Limited Duration Income Trust (BLW): +18.7%
Investment Grade Bonds
- PIMCO Corporation Opportunity Fund (PTY): +28.9%
- BlackRock Corporate High Yield Fund, Inc (COY): +17.9%
- BlackRock Corporation High Yield Fund III Inc (CYE): +17.7%
- Pioneer High Income Trust (PHT): +17.3%
- PIMCO Dynamic Income Fund : +30.7%
- AllianceBernstein Global High Income Fund, Inc (AWF): +18.8%
Debt Sectors and Loans
- BlackRock Debt Strategies Fund, Inc (DSU): +19.8%
- BlackRock Senior High Income Fund, Inc (ARK): +19.3%
Now to highlight a few funds that missed out on the change to put up attractive numbers during a 12-month period when almost everything made money.
The Gabelli Utility Trust (GUT) ended up with a 7.1% loss for the period when this funds price to NAV premium collapsed from around 50% to 15%. GUT posted a positive 24% return over the last 12 months on an NAV basis.
The Gabelli Global Gold, Natural Resources & Income Trust lost 24% over the period in spite of no change in the premium/discount and a double digit dividend yield. This fund is just in the most wrong of market sectors.
The Alpine Global Dynamic Dividend Fund (AGD) produced a negative 10% return for investors when this perennially under performing CEF had its share price swing from a premium to a discount. The sister fund, Alpine Total Dynamic Dividend Fund (AOD) was a break-even for investors as the discount widened enough to cover any gains.
Within the high-yield, closed-end fund selections, I am most interest in the debt focused funds. With equities, I would rather pick individual, dividend paying stocks, REITs or MLPs. However, the half-dozen tax-advantaged equity funds all seriously out-performed SPY over the last 12 months. On the bond side, yields and potential price appreciation can be had in any sector. You probably noted that the rather large selection of BlackRock closed-end debt and bond funds did very well over the last year. I personally like global bonds and the debt sector/loan funds where BlackRock is excelling.