The answer to the title question is: Maybe. The universe of closed-end funds offers a wide range of high-yield investment choices. My database of funds with more than $250 in assets and yields greater than 6% includes about 100 funds in 10 different categories. The list does nt include any tax-free bond funds. The question explored today is whether the closed end funds with double-digit yields - greater than 10% - actually allow investors to earn a 10% or greater return over time.
The methodology for today's comparison is simple: Compare the one-year and six-month share price returns of the 28 closed-end funds in the database which carry current distribution yields over 10%. All data is as of June 21, 2012. For a comparison, the S&P 500 is up 4% over the last year and 9% for six months.
Disappointing Share Price Results
For the one-year share price returns, 22 of the 29 funds are down more than 10%, completing negating any dividend earnings. Only three funds are break-even or better over the last year. The three closed-end funds which have are worth at least what they were a year ago are the PIMCO High Income Fund (PHK), the Western Asset High Income Fund II Inc (HIX) and the AllianceBernstein Global High Income Fund, Inc (AWF). All three funds are leveraged bond funds and the best share price return is PHK, up 1.4%.
For the most recent 6 months, 17 out of 29 funds are in positive territory on their share prices. PHK is again the best of the bunch, up 11%. A couple of other funds with attractive half-year gains are the ING Emerging Markets High Dividend Equity Fund (IHD) - up 10%, the ING Infrastructure, Industrials and Materials Fund (IDE) - up 8.7% and The Gabelli Natural Resources, Gold & Income Trust (GNT) - up 7.6%. The dividends earned on these stock market sector funds would be added on top of the gains.
An important point to understand is that many of these high yield closed-end funds are extremely volatile and the historic returns are very dependent on the time frame selected. Take a look at this 6-month chart for IHD.
Going back a full year, this fund is down 21% and has been down over 30%, giving a greater than 50% price swing over the course of a year. Yet IHD has paid a 45 cent dividend every quarter since its inception, a little over two years ago.
Attractive High Yield Picks
For a stable 10% plus dividend yield and relatively stable share value, it would be hard to pass up on the PIMCO High Income Fund . This fund has paid a 12.188 cent monthly dividend since the beginning of time - June 2003. The two sector funds, IHD for emerging markets and GNT for gold and natural resources are paying steady distributions and investor should look for a low share price entry point.