Today I will add a little bit of sanity to the overall, ongoing CEF discussions on this site. I have read very few articles worth mentioning when it comes to CEFs, and unfortunately many of the 'experts' I find only add to the problem.
With that being the case, my article will aim to do the following:
1.) Give you a current list of CEFs worth buying.
2.) Show you the criteria by which I choose CEFs.
Fair? I believe so...
So, first, here are a list of terms you should make yourself familiar with before you continue reading:
2.) Premium Discount.
3.) ROC (see the educational video in Nuveen's CEF video library).
4.) Fund Market Cap.
5.) Distribution Rate.
For the purposes of this article, I will assume the following:
1.) UNII (at least -0.1213).
2.) Premium Discount (at least -0.17%).
3.) ROC (majority earned vs unearned).
4.) Fund Market Cap (93M).
5.) Distribution Rate (min 8.5%).
6.) NAV (5 dollars a share).
7.) 100k plus trading volume avg.
When I run these screens, the following CEFs (from out of nearly 800 funds) catch my eye:
ETJ - US equity covered call.
ETW - US equity covered call.
ETV - US equity covered call.
ETB - US equity covered call.
JGT - Short term currency/global.
MFD - Infrastructure/global (does not meet volume screen but still attractive).
IHD - Emerging Dividends (too new for some metrics, low volume).
Out of the entire world of CEFs, these are a select few that I would actually buy. CEFs have unique trading patterns, with many unique partners in the mix on a daily basis. Unfortunately, some traders trade solely on distribution, or premium discount, and completely ignore some of the finer points. In an attempt to avoid the funds (and the volatility) that those sort of traders buy, I apply the aforementioned screens. That way, we buy funds at strong relative value, funds earning a majority of their dividend, not thinly traded, and large enough to fight off activist traders.
What you won't find me talking about is beta, alpha, sharpe, etc. because with CEFs they truly don't matter. The market price of a CEF is not a real asset with real value outside of supply and demand, therefore, it makes little to no sense to screen the common shares via traditional metrics. I strongly suggest you look at the internals (NAV) of the funds in conjunction with the short term trading patterns of the market price, which is exactly what I have done for you today.
That's all for now. Any questions? Feel free to comment.