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We constructed an investment plan - Five Core Asset CEFs - by using five closed-end funds (CEFs) that represent five major asset classes. These funds allow us to gain exposure to five major assets: U.S. equity, foreign equity, REITs, emerging market equity and fixed income.

Asset Class Ticker Name
LARGE VALUE GDV Gabelli Dividend & Income
Foreign Large Blend BGY BlackRock International Growth & Income
REAL ESTATE RQI Cohen & Steers Qual Inc Realty
WORLD BOND GIM Templeton Global Income

We then use two asset allocation strategies: Strategic and tactical asset allocation strategies (SAA and TAA) that use the above five CEFs to construct two portfolios.

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purposes, we also include the moderate model portfolios of a typical five asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETFs equivalent:

U.S. Equity: SPY or VTI

Foreign Equity: EFA or VEU


Emerging Market Equity: EEM or VWO

Fixed Income: AGG or BND

Performance chart (as of Dec 8, 2011):

Click to enlarge

Performance table (as of Dec 8, 2011)

Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Five Core Asset CEFs Tactical Asset Allocation Moderate 0% 0% 16% 102% 10% 63%
Five Core Asset CEFs Strategic Asset Allocation Moderate -8% -42% 20% 90% 1% -1%
Five Core Asset ETF Benchmark Tactical Asset Allocation Moderate 3% 15% 9% 71% 8% 49%
Five Core Asset ETF Benchmark Strategic Asset Allocation Moderate -2% -7% 14% 81% 2% 9%

The five core asset CEF tactical asset allocation portfolio outperforms the corresponding ETF one in three and five year periods. The strategic CEF portfolio did well in the three year period but under performed in the one- and five-year period, compared with the ETF one.

Closed-end funds offer better yields and more opportunities with the expense of increased volatility. The best way to invest in closed-end funds is to adopt a rigorous asset allocation strategy that is well defined and consistent.


MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: I am long SPY.