A well-balanced portfolio needs to have a variety of unrelated investments. I am always on the lookout for investment vehicles with a low correlation to existing assets which could dampen portfolio volatility and increase income. Earlier this year I was looking over the closed-end covered call funds and ended up buying some MCN.
These funds buy dividend-paying large-cap stocks and write calls on the shares to generate additional income, sacrificing some of the stocks’ upside potential to increase yield. There are other covered call funds, and they may be better than MCN, but that is the one I own.
MCN hasn’t done very well in relation to the S&P historically but it does have a current yield of 8.89%, a low 1-year correlation to the S&P of .41, and a very low beta of .17. MCN was selling at a 5.1 % discount to net asset value when I bought it and that discount has narrowed to .07% at present. I would like to buy more, but I want to get it at a good discount to net asset value, so I am waiting.
MCN 1-yr. chart
Related Articles: Covered Call Funds: Like Everything, Good in Moderation