5 Closed-End Funds With Low Beta/Expenses and Selling at a Discount

Includes: ACG, BSP, ICB, MTS, NZF
by: George Spritzer, CFA

Many investors have been raising cash in their portfolios because of the ongoing debt crisis. But cash is paying virtually zero nowadays.

I ran a stock screen to look for closed-end funds that can be used to park some cash until there is more clarity with the debt crisis.

My initial screening criteria were:

  1. Beta < 0.5
  2. Yield >4%
  3. Expense ratio < 1.00
  4. Discount to NAV < -5.00

Many municipal bond CEFs passed the above screen. For diversification reasons, I only selected one muni bond CEF for this report.

Here are my five selections sorted by dividend yield:

1. American Strategic Income Portfolio II (NYSE:BSP): Closed-end fund invested mainly in whole loan mortgages. The fund uses effective leverage of 31.2%. The current discount is in line with the average discount over the last 12 months. BSP uses a managed distribution plan, so a portion of the yield is return of capital.

Yield= 11.15% Beta= 0.35 Expense Ratio= 0.95%

Discount to NAV= -11.91%

2. Nuveen Dividend Advantage 3 (NYSEMKT:NZF): National Municipal Bond closed-end fund. Currently trading at an above average discount and has a below Average expense ratio.

Yield= 7.30% Beta= 0.19 Expense Ratio= 0.93%

Discount to NAV= -5.14%

3. Alliance Bernstein Income Fund, Inc. (NYSE:ACG): High quality investment grade bond fund that I have written about before. ACG is one of the largest closed-end funds in asset size and is highly liquid.

Yield= 6.09% Beta= 0.37 Expense Ratio= 0.60%

Discount to NAV= -12.25%

4. Morgan Stanley Income Securities Inc. (NYSE:ICB): Closed-end fund invested primarily in investment grade corporate bonds. The fund is unleveraged, has low expenses and low volatility.

Yield= 5.10% Beta= 0.13 Expense Ratio= 0.66%

Discount to NAV= -6.76%

5. Montgomery Street Income Securities (NYSE:MTS): Unleveraged closed-end corporate bond fund with duration of about four years. MTS is one of the rare Pimco-managed closed-end funds available at a discount to net asset value.

Yield= 4.80% Beta= 0.15 Expense Ratio= 0.82%

Discount to NAV= -9.20%

Disclosure: I am long ACG, NZF, MTS, ICB.