Constructing A High Income, Lower Risk CEF Portfolio
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Nov. 4, 2013, 1:14 PM
- Closed-end bond funds had a good October - up 1.89% on a per-share basis while NAV grew 1.96%. This means, however, the sizable discount to NAV for the group of 6.04% failed to budge from a month earlier.
- "The materially large discounts represents an opportunity for investors to reduce risk," says Stifel's Alexander Reiss and Thomas Boyes. The boost an investor gets when buying a CEF at a discount is what they term the Discount Yield Benefit (DYB), and - among other things - it can make the net cost of owning a CEF cheaper than traditional lower-cost options like passively-managed index funds.
- Current favorites of the team are: ERC, MCR, MMT, and FT, all of which trade at discounts to NAV of about 12%.
- Senior loan funds have remained more popular (possibly a danger, according to this analysis) and trade at an average discount of just 3.61%. The team's favorites are FCT, PPR, and VVR.
ERC vs. ETF Alternatives
WELLS FARGO ADVANTAGE MULTI-SEC INC FD is a closed-end management investment company. It invests in non-investment-grade corporate debt securities, including floating rate high yield bank loan securities, foreign, emerging market debt securities etc.
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