Xyrus

Closed-End Funds: The Preferred Way to Play the Financials

Not to second guess your investment decision, but there are some things to consider before investing in something like JQC.

First and foremost, JQC (like a number of other closed end funds) has a managed distribution policy in place. For those who don't know, a managed distribution policy means the fund pays out a regular amount at whatever interval they specify (monthly, quarterly, etc.). The good part is that you get income you can count on every month without any fluctuation. The bad part is, if the earnings of the fund are less than what is required for the payout, they return capital. That's not necessarily a bad thing (like for retirees), but before you follow the sweet dividend yields make sure you're not just getting your money back. According to CEFA, the income only yield was 6.99% but the distribution is over 10.7%.

Second, XLF has an expense ratio that is 0.75% less than JQC. That should be factored in as well.

Third, XLF has outperformed JQC over the long haul, though JQC has only been around a couple of years so that may not mean much.

Lastly, there is at least one ETF that invests in preferred securities. PGX is a fairly new ETF that invests in a bucket of preferred securities, many of them in the banks you listed off. It currently yields around 7.3%, which isn't too shabby for an unleveraged ETF. Plus it doesn't have any hidden gotchas that closed end funds can have.

~X~