A Great Way To Beat Bond Yields

| About: AllianceBernstein Income (ACG)

ACG, the AllianceBernstein Income Fund, is a well diversified closed-end fund. A closed-end fund is an aggregated investment made by a fix amount of shares. It is named closed-end fund because, in general, the fund doesn't issue new shares and the only way to enter into the fund is through the secondary market. In fact, ACG can be easily bought in the New York Stock Exchange.

But, why ACG? First of all, this fund is dividend-orientated. It's current yield is an attractive 5.8%, paid monthly. But, of course, it's not only dividend what matters but total return. So, second, let's compare the performance of ACG against possible benchmarks such as Johnson & Johnson, a very stable Dividend Aristocrat company, and S&P itself through SPY, its ETF.

As we see on the chart, which shows Total Return Prices (it includes dividends and dividend reinvestment), ACG (blue) has outperformed enormously, beating JNJ (orange) and SPY (red). In a 5-year chart, it happens the same thing.

Third, ACG has shown a consistency that it's difficult to find in other closed-end funds. It was launched in 1987 and has a perfect track record. Wells Fargo is one of the major shareholders. Even though it's related to the stock market (its beta is 28%), primordially, it invests in bonds with the maximum quality (76% AAA). How could it get such a high return buying these bonds? Through leverage: Almost 32% of the purchases are done using some kind of leverage.

Usually, as an investor, you need a premium on top of the secondary market value versus the portfolio value. Historically, ACG has moved its discount from a positive +1% to a negative -15%, the last 3 years. Now, the discount answers for a fair 9%. Quite acceptable.

So, to sum up, we present a good option for diversification purposes, which pays a nice dividend and has outperformed the market in the past. Bonds can become very tricky in the future, however, in SimplyNoRisk, we don't try to forecast the future, but to be prepared for whatever comes ahead.

Disclosure: I am long ACG.

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