Managed Risk Portfolio: Closed End Funds And Income

by: Charles Bolin

This article looks at the pros and cons of closed end funds and identifies lower risk funds with higher risk-adjusted returns.

Mutual Fund Observer, Morningstar, and Portfolio Visualizer are used to identify lower risk mutual funds, exchange traded funds and closed end funds with higher-risk adjusted returns.

Three model portfolios with varying amounts of volatility are created based on the past 18 months of data consisting of 13 lower risk funds with higher risk adjusted returns.


My appreciation goes out to Robert, who has encouraged me to look at closed end funds (CEFs) for their high yields, and provided suggestions. This article focuses on CEFs from a risk-adjusted return perspective. The article is detailed to help investors in or nearing retirement understand the macro view. Readers interested only in closed end funds should skip to that section. Readers only interested in funds with high risk-adjusted returns that have done well during the past 18 months should skip to the May Model Portfolio Section.

As an investor nearing retirement, my financial priorities lie in capital preservation, managing taxes, and income. The main tools that I use are Mutual Fund Observer Premium MultiSearch ($100/yr) for identifying funds that are low risk, have higher risk-adjusted funds, prices trending up, and pay decent dividends; Portfolio Visualizer (free) for fine tuning fund selection and determining allocations; and Morningstar Premium Services ($199/yr) for providing detailed fund analysis and the X-Ray Interpreter.

...most individual investors don't have a process governing their investment decisions and instead rely on what their gut is telling them about deciding when to buy and sell. Alas, the gut isn't a very reliable market indicator. Reading Minds and Markets, Jack Ablin, 2009, now Founding Partner and Chief Investment Officer at Cresset

Recognizing the need for an investment system as Mr. Ablin described in 2009, I developed an ever-evolving Investment Model over the past decade that takes into account around 100 economic, financial, momentum, valuation, psychology and risk indicators. The output is an estimate of allocation to equities which is currently at 35%. Secondly, I use the process described in this article to build Three Model Portfolios with allocations to stocks ranging from 21% to 52% to match increasing risk tolerances. I evaluate the markets each month and make small changes to my portfolio.

The following puts debt and equity performance into perspective during the 2007-2009 bear market. The S&P 500 had a maximum drawdown of 50.9% from November 2007 to February 2009 while funds in the Lipper Category, "U.S. Treasury General Funds", had a maximum drawdown of 7.5% and an average annualized return of 11.7%. During this time period, the average high yield bond fund had a maximum drawdown of 27% and a loss of 16% annualized for the period. Corporate BBB funds had a maximum drawdown of 13% and a loss of 1% for the period. Municipal High Yield debt funds lost 12%. If one believes that we are approaching a recession then it is prudent to reduce riskier bonds funds in favor of quality.

The longer investors go without encountering a rare event, the more vulnerable they will be to it. This is how bubbles form in stocks, real estate, and commodities. Investors get comfortable and are very happy with the appreciation of their assets and invest more at or near the top. It looks like a sure thing. ...stocks have been risky in the past and they will likely be risky in the future. Bonds: The Unbeatable Path to Secure Investment Growth, Hildy Richelson and Stan Richelson, 2007 edition.

This month, I begin tracking closed end funds (CEFs) as a possible way of increasing risk-adjusted returns. The Ulcer Index is used to measure risk and the Martin Ratio is used to measure risk-adjusted return. Momentum is measured using 3 and 10-month trends. Price to earnings ratio and bear market deviation, among others, are used to eliminate outliers. Low quality bonds are minimized.

Macro View - Stagflation???

The Atlanta Fed's GDPNow estimate of second quarter real GDP is 1.2%. While inflation is currently in a good range for stocks, low unemployment and trade tariffs raise concerns of inflation which may lead to even slower growth as described by Kristina Hooper in "Talking Tariffs: New Tolls Threaten To Further Strain U.S.-China Relations."

Free trade has historically produced lower prices by enabling companies and consumers to purchase from the lowest-cost provider - cheaper imports from China have lowered US consumer price levels by 1-1.5% in aggregate... Conversely, the imposition of tariffs and other forms of protectionism will only serve to drive up prices, in my view. Tariffs can create inflation - not by stimulating demand, but by simply increasing the cost of goods.

Craig Blanchfield raises the possibility of stagflation in "How To Prepare Your Portfolio For Stagflation":

Stagflation has become a real consideration due to recent escalations in trade tensions between the U.S. and its largest trade partners. Stagflation is that unfortunate condition in which economic growth slows at the same time that prices rise. It may seem like a counter-intuitive combination, but it has happened, most notably in the 1970s...

Over the past year, the yield on 10-Year Treasuries fell from 3.0% to 2.4% increasing total return of bond funds. Inflation has been falling since mid 2018, but started rising in 2019. Rising inflation tends to be associated with rising interest rates and lower price to earnings ratios, and conversely, the Federal Funds rate is often lowered to stimulate growth. These trends and their impacts on bond returns are worth following. During low growth, inflationary periods, gold, inflation protected bonds, consumer staples, health care, utilities, energy, industrials, and materials tend to do well.

My own beliefs align with what Nathan Peterson at Charles Schwab wrote in "Trader’s Outlook for May 17, 2019: Near-term Outlook Warrants a More Cautious Stance":

Inflation has continued to remain in check and the consensus on the Fed’s outlook remains dovish, so the next move still appears to be a cut rather than a hike. It’s worth pointing out that this morning’s 74% probability of a cut sometime in 2019 is a sizeable jump from last Friday’s 58% closing level... It didn’t get a lot of press but the spread on the 10-year/3-month inverted multiple times this week... However, the 10-year/2-year spread has yet to invert and currently stands at a positive 19 basis point differential... For now, I think equity traders are ok with a 10/3 inversion but we would likely get hit with a sell-off “if” the 10/2 inverts, so the latter is worth monitoring... Equity markets remain fairly resilient in the face of trade tension, but at current levels a little more cautious stance might be prudent for traders. [emphasis is mine]

Another good article is from Kathy Jones at Charles Schwab, "Interest Rates May Be “Lower for Longer: What’s an Income Investor to Do?" She makes the case for slower growth due to slowing consumer spending in the U.S., slowing global growth, diminishing effects of cuts to tax rates, and aging demographics. For income investors, she advises quality bonds and diversification possibly into longer duration municipal bonds, preferred securities, and fixed income over floating rate bonds. Particularly, I like the comment below which is to lock in gains from this decade long cyclical bull market by shifting into less risky fixed income assets which are benefiting from higher yields.

Finally, some investors may want to consider generating income by selling assets, using a total-return approach that harvests some of a portfolio’s gains—including price appreciation—for income as needed.

Bench Mark Funds

The effect of falling rates on total returns of bond funds like BND can be seen in Table #1 "Bench Mark Funds" which is sorted from lowest risk (Ulcer Index) to highest. BND has returned 6.7% for the past 12 months compared to 7.2% for the S&P 500, but without the volatility. Returns of short-term inflation bond funds like VTIP have been accelerating in 2019, while returns of longer duration funds like TIP are more pronounced.

The Model Portfolio with the maximum Sharpe Ratio is close in volatility to the Mixed Asset Today and Conservative categories for volatility. The Model Portfolio with 8% volatility will be close to the Mixed Asset Growth category. I see too little reward for the conservative individual investor to be above 60% equities (mixed asset growth), while my personal preference is to be between 30% and 40% equities in the current environment.

Table #1: Bench Mark Funds


Mutual Fund Observer (Since Nov 2017) Morningstar
Ulcer Martin Max DD Rtn 3Mo Rtn 1Yr %Yld TTM Tax Cost Ratio 3yr
VMMXX Money Mkt 0.0 - 0.0 0.6 2.3 2.2 0.6
VTIP Infl Prot 0.3 -0.5 -0.6 1.5 2.7 2.4 0.7
TIP Infl Prot 1.1 0.7 -2.5 2.6 4.2 2.4 0.9
VTINX MxdAst Today 1.4 1.4 -3.4 2.1 4.2 2.6 1.0
BND Core Bond 1.4 0.2 -2.4 2.5 6.7 2.8 1.1
AOK MxdAst Cons 1.8 0.8 -3.9 2.3 4.3 2.7 1.0
VWINX MxdAst Cons 1.9 1.6 -3.5 2.6 7.3 3.0 1.6
AOM MxdAst Mod 2.4 0.7 -5.5 2.2 3.6 2.5 0.9
VBIAX MxdAst Growth 2.9 2.0 -8.2 2.7 6.8 2.2 0.8
VWENX MxdAst Growth 2.9 1.8 -6.7 2.6 6.4 2.7 1.9
AOR MxdAst Growth 3.5 0.7 -8.6 2.1 2.4 2.4 1.0
SPY S&P 500 4.8 2.0 -13.5 3.2 7.2 1.8 0.8

Source: Created by Author based on Mutual Fund Observer and Morningstar

According to Morningstar, the Three-Year Tax Cost Ratio "represents the percentage-point reduction in an annualized return that results from income taxes. The calculation assumes investors pay the maximum federal rate on capital gains and ordinary income." Of course, the implication of tax varies for individuals.

Closed End Funds (CEFs)

A discount makes closed-end funds particularly attractive to bond investors, which explains why the majority of closed-end funds are invested in bonds. Funds pay out income based on the share's lower net asset value, not the market price. That’s one reason a closed-end bond fund often pays a higher yield than a comparable open-end fund... Another reason is that many closed-end bond funds use leverage, which pumps up their income. But it also increases a fund’s volatility and therefore its risk. When interest rates fall, the returns on leveraged bond funds are superior. When interest rates rise, leveraged bond funds get slammed. "What Are Closed-End Funds?", Morningstar

I believe Closed-End funds are one of the most opportunistic class of funds available to investors. The reason is not so much because of their high yields or the fact that they can trade at premiums or discounts but rather because in the short run, these funds can be very unpredictable but in the long run, they can be one the most predictable class of investments I know of. "CEFs: Income + Opportunity", Douglas Albo, Seeking Alpha

I just added CEFs to the funds that I track so I downloaded nearly 500 CEFs from Mutual Fund Observer. The average fund has returned 3.8% annually for the past 18 months, had a maximum drawdown of 9.0%, standard deviation of 9.2, Ulcer Index of 3.9, Martin Ratio of 1.8, assets under management of nearly $500 million, a yield of 6.2% and is 18 years old. The take away is that these funds have been around for a long time, have high yields, may have high risk-adjusted returns, but can be volatile.

Table #2 below shows the metrics for the Lipper Sub-Types. Municipal Bonds and Bond CEFs have the most potential to complement a lower risk portfolio.

Table #2: CEF Summary Metrics for Past 18 Months

% Funds APR% MAXDD STDEV% Ulcer Index Martin Ratio
Municipal Bond 30% 3.7 -2.6 3.6 1.2 1.8
Bond 27% 3.7 -5.9 5.7 2.4 3.4
Mixed Asset 8% 4.8 -11.1 10.6 4.1 1.2
Alternative 6% 5.2 -12.8 11.9 5.2 0.9
U.S. Equity 5% 6.5 -15.0 14.7 5.9 1.1
Global Equity 5% 3.3 -15.5 14.6 6.8 0.2
Sector Equity 15% 4.1 -17.3 19.4 7.5 1.3
International Equity 5% -1.7 -21.4 16.5 11.6 -0.3

Source: Created by Author based on Mutual Fund Observer

I use risk (Ulcer Index), risk-adjusted return (Martin Ratio), Yield, and 3 and 10-month price trends to select one fund per Lipper Category. These CEFs are shown in Table #3, sorted from lowest risk to highest. The following funds were not in existence at the start of the 2007 bear market: NID, PCI, BBN, and PGZ. The funds in bold below are of more interest to me for lower risk, higher risk-adjusted returns.

Table #3: Metrics for Lower Risk Funds Per Category (Past 18 Months)

Mutual Fund Observer

Category Ulcer 18 Mo Martin 18 Mo


18 Mo



Rtn 1Yr %Yield TTM Tax Ratio 3Yr Disc /Prem
DMO U.S. Mort 0.1 85.8 (0.4) (10.9) 5.4 11.0 6.0 7.7
MUA Muni HY 0.3 8.2 (1.1) (22.1) 20.3 4.7 0.0 5.5
NIM Muni Gen&Ins (Unlvgd) 0.5 3.0 (1.2) (6.2) 10.3 3.0 0.0 -3.3
NID Muni Gen & Ins (Lvgd) 0.6 6.2 (1.5) (12.0) 11.8 3.7 0.0 -6.1
PCI Global Inc 0.6 9.9 (2.3) 15.0 10.0 4.2 2.8
GOF HY (Lvgd) 0.8 3.9 (2.8) (34.8) 7.9 5.9 4.1 13.6
SBI Muni Interm 0.9 0.9 (1.9) (9.8) 6.6 3.4 0.0 -12.4
BBN Gen Bond 1.2 2.8 (3.1) 13.9 6.3 2.7 -1.5
PGZ Real Estate 1.3 8.4 (3.4) 20.0 4.9 2.8 -11.2
ETJ Options 3.0 1.9 (8.6) (10.0) 10.3 2.8 1.6 0.0
EVT Value 4.6 2.0 (13.8) (65.0) 11.3 2.4 2.2 0.3
USA Core 4.7 2.0 (13.7) (55.0) 8.6 7.5 2.5 -4.3
ETO Global 6.0 0.8 (16.6) (61.1) 2.1 2.0 2.2 3.8

Source: Created by Author based on Mutual Fund Observer and Morningstar

Efficient Frontier For CEFs

Chart #1 is the Efficient Frontier for the Closed End Funds along with the S&P 500 (SPY).

Chart #1: CEF Efficient Frontier

Source: Created by the Author using Portfolio Visualizer

Comparison Of Global And International Income Funds

Table #4 is a comparison of PIMCO Dynamic Credit Income CEF (PCI) to mutual funds in the Global and International Income categories. I chose PCI because I own PRSNX and VTABX. For the past five years, the fund has had high returns and low volatility, although higher than comparable funds. I have not researched PCI, but Morningstar gives it a 4 star rating. PCI has a 12-month trailing yield of 10%.

Table #4: Comparison of Global/International CEF and Mutual Funds (5 Years)

Company PIMCO T Rowe Price PIMCO Vanguard
Name Dyn Credit & Mort Glbl Multi-Sector Glbl Bond Opp Total Int Bond
APR %/yr 9.6 3.7 3.6 4.0
MAXDD % -10.1 -3.2 -3.8 -2.9
STDEV %/yr 5.4 3.1 2.7 2.6
Ulcer Index 2.6 1.0 1.2 1.0
Martin Ratio 3.3 2.9 2.4 3.2
APR vs Peer 7.6 1.7 1.6 3.2
MFO Risk 2.0 2.0 2.0 2.0
MFO Rating 5.0 5.0 4.0 5.0
Age yr 6.3 10.3 23.5 5.9
ER %/yr 0.0 0.6 0.9 0.1
Yield %/yr 10.0 3.7 2.0 2.9

Source: Created by Author based on Mutual Fund Observer

May Model Portfolios

The link to the May Model Portfolio comparison in Portfolio Visualizer is here: Backtest Portfolio Asset Allocation. Interested readers may dig into the details, change allocations, and change or swap funds of their own preference. Chart #2 has the results of the Portfolio optimization. The key takeaway is that the Model Portfolio with 6% volatility (black line) has performed as well as the S&P 500 without the volatility.

Chart #2: Model Portfolio Performance

Source: Created by Author based on Portfolio Visualizer

Table #5 is a summary of the metrics for the funds. The funds were narrowed from a universe of about 75 funds including CEFs. The selection of the funds is highly subject to my preferences which follows a bucket approach. For example, I limited allocations to sector funds to 5% per fund with no more than 10% total. In retrospect, I might have selected more CEFs to be included. Withdrawals were set at 4% annualized.

Table #5: Model Portfolio Metrics

Fund Name Max Sharpe 6% Vol 8% Vol
HOLD 10% 0% 0%
SLQD 15% 11% 0%
VTABX 10% 10% 10%
BBBMX 15% 15% 5%
BIAEX 10% 10% 10%
FIKFX 5% 0% 0%
JABAX 5% 0% 15%
LGLV 5% 14% 15%
YAFFX 15% 15% 15%
DGLRX 0% 0% 5%
FAMEX 0% 15% 15%
PGZ 5% 5% 5%
FSUTX 5% 5% 5%
Total 100% 100% 100%
Metric Max Sharpe 6% Vol 8% Vol SPY
Return (with withdrawals 2.1% 4.6% 6.0% 4.9%
Return (w/o withdrawals) 6.4% 9.0% 10.5% 9.3%
Standard Deviation 3.5% 6.1% 8.1% 15.4%
Max. Drawdown -2.8% -4.5% -6.2% -14.4%
Sortino Ratio 2.25 1.88 1.67 0.77
US Stocks 21% 39% 52%
Intl Stocks 4% 4% 7%
US Bonds 45% 29% 19%
Intl Bonds 16% 14% 11%
Cash 8% 8% 6%
Unknown 5% 5% 5%

Source: Created by Author based on Portfolio Visualizer

Efficient Frontier - Funds From May Model Portfolio

Chart #3 is the Efficient Frontier for the Closed End Funds along with the S&P 500 (SPY). The red ellipse contains the equity funds while the blue ellipse captures the bond funds. The mixed asset funds lie in the gap between the two.

Chart #3: Efficient Frontier - Funds from May Model Portfolio

Source: Created by the Author using Portfolio Visualizer

Performance - Funds From May Model Portfolio

The metrics for the funds in the May Model Portfolios are shown in Table #6.

Table #6: Model Portfolio Fund Metrics

Mutual Fund Observer (Since Nov 2017) Morningstar
Funds Ulcer Martin Max DD Rtn 1 Month Rtn 3 Month Rtn 1 Year % Yield TTM Tax Cost Ratio 3 Yr
HOLD 0.0 - 0.0 0.3 0.8 2.6 2.2 0.6
BBBMX 0.0 - 0.0 0.5 1.3 3.5 2.8 1.0
VTABX 0.1 17.6 -0.5 0.8 2.1 6.1 2.9 1.0
BIAEX 0.3 6.9 -0.7 1.3 3.0 6.2 3.3 0.0
SLQD 0.4 1.2 -0.8 0.5 1.6 4.8 2.7 0.9
FIKFX 1.1 1.5 -2.3 0.2 2.0 4.6 2.0 0.8
PGZ 1.3 8.4 -3.4 1.2 6.3 20.0 4.9 2.8
YAFFX 2.1 6.0 -4.7 -2.2 2.5 14.4 1.3 3.4
FSUTX 2.4 4.4 -7.6 -1.5 4.2 16.0 1.3 1.3
JABAX 2.5 3.4 -7.2 -0.6 3.0 7.9 1.6 1.5
LGLV 2.9 4.9 -7.6 0.7 6.2 17.8 1.9 1.3
FAMEX 3.0 5.0 -8.1 -2.3 4.2 15.3 0.7 1.1
DGLRX 4.2 2.6 -11.6 -3.1 3.1 9.2 0.7 1.2

Source: Created by Author based on Mutual Fund Observer and Morningstar

The following charts show the performance of the funds by asset class.

Chart #4: Model Portfolio Performance - Bond Funds

Source: Created by Author based on Portfolio Visualizer

Chart #5: Model Portfolio Performance - Mixed Asset Funds

Source: Created by Author based on Portfolio Visualizer

The Yacktman Focused Fund (YAFFX) is the orange line in Chart #4. I purchased it last year because I like its history of doing well in downturns.

Chart #6: Model Portfolio Performance - Equity Funds

Source: Created by Author based on Portfolio Visualizer

The only Closed End Fund that Portfolio Visualizer and I selected is the ALPS Advisors's Principal Real Estate Income Fund (PGZ).

Chart #7: Model Portfolio Performance - Real Estate and Utility Funds

Source: Created by Author based on Portfolio Visualizer

Fund Universe

Table #7 contains the final universe of funds considered to be in the May Model Portfolios. I separate Vanguard and Fidelity because of my personal preferences toward low cost funds. The number to the left of the Lipper Category is my Rank within the Lipper category. They are not always sequential because I may exclude a Sub-Type such as high yield, high leverage.

Table #7: Low Risk, High Risk-Adjusted Funds by Lipper Category

CATEGORY ETF CEF Vanguard Fidelity Other
1) Global Income HOLD PCI
4) Short-Intmdt Invest Grade SLQD EFIPX
6) International Income VTABX
7) Short Invest Grade Debt FLRN FYBTX BBBMX
1) Options Arb/Strat ETJ
2) Alt. Global Macro IYLD
3) Absolute Return PHDG
2) Mxd-Ast Target Consv AOK VWINX FASIX PRSIX
3) Mxd-Ast Target Today VTINX FIKFX
3) Large-Cap Value SYV FSDIX YAFFX
1) Global Multi-Cap Core ACWV
2) Global Small-/Mid-Cap VMNVX
4) Global Equity Income LVL FGILX DQEIX
1) Real Estate REM PGZ FSREX
2) Utility FSUTX
3) Financial Services KBWP FSVLX

Source: Created by Author based on Mutual Fund Observer

The metrics for the funds in Table #8 (including funds later excluded for availability to small investors) are shown Table #8 below:

Table #8: Metrics by Lipper Category for Selected Funds

BOND Risk Ulcer Rating Martin Sharpe
1) Global Income 1.3 0.2 5.0 9.4 1.0
4) Short-Intmdt Invest Grade 1.0 0.3 4.0 4.6 0.4
6) International Income 1.0 0.2 5.0 12.5 1.1
7) Short Invest Grade Debt 1.0 0.1 5.0 4.1 0.9
MUNICIPAL BOND Risk Ulcer Rating Martin Sharpe
3) Muni Interm Debt 1.0 0.6 3.4 2.5 0.5
ALTERNATIVE Risk Ulcer Rating Martin Sharpe
1) Options Arb/Strat 3.0 3.0 5.0 1.9 0.7
2) Alt. Global Macro 2.0 1.7 4.0 1.2 0.4
3) Absolute Return 2.0 2.7 4.5 1.9 0.5
MIXED ASSET Risk Ulcer Rating Martin Sharpe
1) Mxd-Ast Target Moderate 2.5 2.5 4.0 1.8 0.6
2) Mxd-Ast Target Consv 2.0 1.8 4.3 1.1 0.4
3) Mxd-Ast Target Today 1.7 1.0 5.0 1.5 0.4
US EQUITY Risk Ulcer Rating Martin Sharpe
1) Equity Income 4.0 4.1 4.0 2.5 0.7
2) Multi-Cap Core 4.0 3.9 4.3 2.5 0.7
3) Large-Cap Value 3.3 3.1 4.3 3.1 0.8
GLOBAL EQUITY Risk Ulcer Rating Martin Sharpe
1) Global Multi-Cap Core 3.0 2.8 5.0 2.3 0.7
2) Global Small-/Mid-Cap 3.0 2.7 5.0 2.4 0.7
4) Global Equity Income 3.7 4.9 4.3 1.1 0.4
SECTOR EQUITY Risk Ulcer Rating Martin Sharpe
1) Real Estate 3.0 2.0 4.7 4.5 0.9
2) Utility 3.0 2.4 5.0 4.4 1.2
3) Financial Services 4.0 4.5 5.0 2.1 0.6

Source: Created by Author based on Mutual Fund Observer

Efficient Frontier - Combined Funds

Chart #8 contains the combined May Model Portfolio Funds and the CEFs highlighted in this article. The red ellipse captures most of the CEFs while the blue ellipse captures most of the mutual funds and exchange traded funds. Of particular interest to me are the funds that lie between bonds and equities such as ETJ, NIM, SBI, NID, GOF and MUA.

Chart #8: Efficient Frontier - Funds from May Model Portfolio

Source: Created by the Author using Portfolio Visualizer

Fund Spotlight: Eaton Vance Risk-Managed Diversified Equity Income Fund (ETJ)

ETJ caught my attention as a defensive equity CEFs. It is a very defensive fund that does well in bear markets but has lower returns in bull markets. Power Hedge describes it as follows in "ETJ: It Could Be A Good Idea To Hedge Your Market Bets With This High-Yielding Closed-End Fund":

Fortunately, there is a closed-end fund that can help you protect your wealth against market turbulence while offering a massive 10.28% yield to boot. That fund is the Eaton Vance Risk-Managed Diversified Equity Income Fund (ETJ)... This strategy consists of selling out-of-the-money call options against the S&P 500 index. The fund then uses the money from this to purchase put options on the index. The point of this strategy is to protect against the downside as the fund will be able to exercise these put options when the market declines without incurring costs due to the premiums that it collects from the sale of the call options. The downside, though, is that by doing this, the fund also generally sacrifices much of the upside that it would otherwise enjoy during strong markets.

Left Banker provides a different perspective in "Feeling Defensive? Try This Closed-End Fund":

In one sense the fund does exactly what it's supposed to do: hold up well in difficult market conditions. But, as a buy-and-hold investor in this category the opportunity cost for this "protection" is more than I'm willing to bear... For another type of investor, one who is more inclined than I toward market timing, ETJ might play an important role. If you think the market is heading into a downturn and want to reposition your holdings with that in mind but don't want to abandon equity entirely, ETJ could be a good play.

Table #9 shows the performance of ETJ in up and down markets. The return of ETJ since 2009 is nearly 4.7% while Table #3 shows that the return over the past year is 10%.

Table #9: ETJ Performance During Up and Down Markets

Source: Mutual Fund Observer

Table #10 shows the performance of ETJ over the past 10 years. The point is that ETJ may outperform a bond fund during bull markets and outperform equity funds during bear markets. It is a fund that I may consider upon further research.

Table #10: Comparison of ETJ to Lipper Categories (Since May 2009)

Source: Mutual Fund Observer


Being new to closed end funds, I am not ready to purchase one at this time. I like some of the CEFs discussed in this article and will continue to monitor them for future purchases.

In this market, my preference is to hold about 35% in equities with a bias for defensive and low volatility funds similar to the May Model Portfolios. Expecting slower growth and continued volatility, I favor quality, short and intermediate term bonds. As a result of writing this article, I shifted a small percentage of my portfolio into inflation protected bonds.

Disclosure: I am/we are long FASIX, FIKFX, FSDIX, FSREX, FSUTX, JABAX, VBIAX, VMNVX, VTABX, VWENX, VWINX, YAFFX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am an engineer with an MBA nearing retirement and not an economist nor an investment professional. The information provided is for educational purposes and should not be considered as advice. Investors should do their due diligence research and/or use an investment professional.