CEF Income Strategies for All Market Seasons: The Remix

by: Douglas Albo

I received alot of comments on my piece regarding the three basic strategies most high-yielding equity-based Closed-End funds (CEFs) use to generate their income, and one common theme was that the Table could have been a little clearer and perhaps more applicable to the fund's market prices rather than just their NAVs. So with that in mind, I went back over my data and added a few columns that I think will be more helpful for investor's in their analysis of these funds which together represent about $28 billion in assets. I also split the Table into two due to its size so the first Table includes the Option-Income funds and the second table includes the Leveraged funds and the Dividend Harvest funds.

The first column I added was the fund's 'Total Distributions' from inception. This includes regular dividends and any capital gain distributions, which mostly came from the leveraged CEFs in up years. From that data, I was able to come up with a fund's 'Total NAV Return' from inception (percentages do not assume re-investment along the way which would have been too time consuming).

I also added columns for each fund's 2010 'Year End Market Price' and 'Discount/Premium at year end. Also, the 'Year End Yield' now reflects the year-end market price rather than the year-end NAV. And finally, I added a 'Dividend Frequency' column to designate funds that go ex-dividend monthly or quarterly.

All of these funds came public over the past decade at $20 per share minus a sales credit which started all of these fund's NAVs at the $19.06 to $19.10 range. So as you can see, most of these fund's have appreciated higher than their inception NAVs when total distributions are added back. One has to be careful though making sweeping conclusions with these percentages since the nearer a fund went public to the highs of the market in late 2007, the more difficult it would have been to recover since then. Still, I believe the data can be revealing as to which funds and which strategies have been the most successful.

Disclosure: I am long EOI, EOS, ETV, ETW, ETY, EXG, JLA and IGD.