In the world of closed-end funds, I have developed a database of high yield funds with the goal of analyzing the list for total return performance potential. In a couple of previous articles, I discussed performance factors for the CEF database as a group - links for those articles are provided below. Recently I have divided the funds by market sector or investment style to compare performance within the sectors and compared to other closed-end fund categories.
My database includes 103 closed-end funds. Selection criteria were funds with at least $250 million in assets and dividend yields greater than 6%. I have been a little flexible on the criteria, selecting some smaller funds with attractive yields. Using the classification and portfolio information from the CEFConnect and Closed End Fund Association websites, I divided my list of funds into 12 categories with one outlier. Six categories are equity focused funds, five own debt securities and the last category is multi-sector funds.
The one fund with its own category is the Cohen & Steers Closed-End Opportunity Fund (NYSE:FOF), a closed-end fund of closed-end funds. From the performance records I track, this fund provides no additional value to investors for the extra level—0.95%—of management fees. The fund's five-year return puts it in the middle of my database and the fund has not earned at least the dividend rate over the five-year period.
Steady Results From Limited Term Bond Funds
I generated the one-year and three-year total returns for the funds to compare the results by and within the different sectors. I plan to cover the sectors in a series of articles. One group of funds which caught my eye are those classified as limited term debt funds. There are just three funds in this group and the returns are nicely grouped over both time frames. Here is a little about each fund—return results are through market close on July 26, 2012:
|Franklin Templeton Limited Duration Income Trust (NYSEMKT:FTF)||6.45%||8.83%||67.7%||+4.9%|
|Blackrock Limited Duration Income Trust (NYSE:BLW)||7.44%||14.18%||57.85%||+3.8%|
|Eaton Vance Limited Duration Income Fund (NYSEMKT:EVV)||7.52%||10.75%||57.85%||+0.2%|
All three funds use 20%-25% leverage to boost yields. Share price values all show positive returns for the one- and three-year periods. Distribution rates have been consistent with no return of capital payments. BLW recently increased the dividend to 10.75 cents per month, up from 10.5 cents.
As far as these three funds go, the returns are close enough and consistent enough to not single out one as the best. FTF has a tendency to swing from premium to discount on a regular basis, so there is no reason not to wait for the price to move to a discount. EVV was at a 10% discount to NAV late last year and that discount has steadily narrowed, indicating buying interest in this fund. BLW also swings between discount and premium, but has been stuck on the plus side for a couple of months.
Any of these three funds—OK, go for EVV at this point in time—fits that hole in an investment portfolio for a stable principal value and a 7% yield from monthly dividends.
Recommended reading: Statistics Do Not Support Widely Held Closed-End Fund Misconceptions