Closed-End funds can be used as one type of vehicle for earning current income and capital growth. Similar to ETFs, mutual funds, Closed-End funds can also be used to gain exposure to overseas markets which are difficult to access for foreign investors.
The following are some of the advantages of Closed-End funds:
- Opportunity to buy at a discount
- Efficient portfolio management
- Ability to control market price and timing
- Leverage potential
- Lower expense ratios
- Clear commissions
- No minimums
Source: Closed-End Fund Association
Along with the usual risks associated with investment in equity markets such as market risk, inflation risk and political risk, closed-end funds can also be highly volatile during adverse market conditions due to their structure.
The following four closed-end funds that offer potential for income and capital appreciation:
1. ING Global Equity Dividend and Premium Opportunity Fund (IGD)
This fund pays dividends monthly and invests about 41% of its portfolio in the US markets and the rest in foreign equities. The annual distribution yield is 11.79%. Financials form about 20% of the portfolio. The fund also uses call and put options to manage risk and enhance returns. The net asset base is $1.1B and the fund is currently trading at a premium of 8.35% to NAV.
2. ING International High Dividend Equity Income Fund (IID)
This CEF also pays a monthly dividend. The current annual distribution yield is 10.76%. The fund invests in high-dividend-yield stocks or derivatives with 50% of the portfolio in European securities, 40% in Asian Pacific equities and the rest in other equities. The net assets of the fund are $86M and the fund is now trading at a premium of 17%.
3. ING Asia Pacific High Dividend Equity Income Fund (IAE)
This fund invests in 75-100 high-yielding Asia-Pacific stocks. To enhance returns the fund also sells call options on select Asian-Pacific equities or indices. The fund has net assets of $208M and the annual distribution yield is 9.58%. In 2009, the fund’s market return was about 87%. Currently the fund is trading at a 4.58% premium. Australia, Hong Kong and South Korea have the highest weightings in the portfolio. Dividends are paid quarterly.
4. ING Global Advantage & Premium Opportunity Fund (IGA)
This CEF has an asset base of $242 M and the annual distribution yield is 10.42%. This fund invests 60% of its portfolio in US equities and the remaining in foreign equities. The fund also uses call options to enhance returns. Because this fund is heavily concentrated in the US market, its return in 2009 was 41%. Dividends are paid quarterly.