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Closed-End Funds: One Of My Favorite Sectors Is On Sale Again

Mar. 06, 2020 5:47 AM ETJPI5 Comments


  • During the month of February, JPI's net asset value - its portfolio of fixed income securities - dropped in value by about 4%.
  • With a dividend yield today pushing 7%, I consider JPI a reasonably good buy.
  • After February's drubbing, there are plenty of other CEFs with far more attractive discounts to NAV than JPI.

Well, February wasn't a lot of fun. The S&P 500 dropped 8.4% on the month, and we saw the fastest 10% correction in the entire history of the U.S. stock market.


I'll spare you another lengthy explanation on why the COVID-19 coronavirus either is no big deal or the beginning of the zombie apocalypse. The truth is somewhere in the middle, but that's a longer conversation for another day.

Instead, I want to focus on the opportunities that crop up at times like these.

The correction may or may not be over. We certainly got a break from it when the Dow jumped by 1,293 points on Monday. But regardless, the chaos of a month like February was bound to create some opportunities, even if more pain is to come.

If you've read my work for any length of time, you know I'm a big fan of closed-end mutual funds ("CEFs").

CEFs are different from their cousins: traditional mutual funds and ETFs. Unlike their cousins, CEFs have a fixed number of shares; there is generally no mechanism to create new shares or redeem old ones based on market demand. This can create some quirky pricing situations where the fund is worth more dead than alive - often much more.

As an example, let's look at a CEF I recently closed out in my income letter Peak Income.

The Nuveen Preferred & Income Term Fund (JPI) manages a pretty "boring" portfolio consisting of traditional bonds, convertible bonds, and preferred stock. With market bond yields steadily falling over the past year, JPI saw a nice increase in both its stock price and in its net asset value ("NAV"). For those unversed in CEF lingo, the NAV is the value of the fund's portfolio minus any debt.

It's normal for a CEF

This article was written by

Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor. He has been a frequent guest on Bloomberg TV and Fox Business News, has been quoted in Barron’s Magazine, The Wall Street Journal, and The Washington Post and is a frequent contributor to Forbes Moneybuilder, GuruFocus, MarketWatch and InvestorPlace.com. Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar.

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Comments (5)

FlaYankee profile picture
The bulk of my portfolio is in closed end funds with a few REITs and the drubbing over coronavirus has been brutal! With that being said I did turn cautious in December and raised cash to over 40% as the runup in January was just pure speculation and not based on fundamentals. That cash horde worked out great as this rather rapid decline of over 12% seemed to hit CEFs and REITs even harder then the rest of the market which has created opportunities across the CEF sector. I am still not done deploying all my cash as I expect continued volatility ahead both on the upside and the downside as the market overreacts to the latest news headlines on the coronavirus. It is never fun to see your hard earned gains evaporate a lot quicker then it took to earn them but it is times of market turbulence where opportunities are made available for the long term investor. Panic selling and fear can be your best portfolio boosters by driving share prices down to very attractive levels where you can add or open up new investments. Energy CEFS are now black and blue in deep bear territory with some in large discounts to NAV. Look at TYG, NTG, KMF and NRGX. NRGX is a Pimco fund selling at a double digit discount while all their other cefs sell at high premiums.
Nice of you to mention all the other funds.
Pewterbird profile picture
"I can't promise you that the market correction is over. But if you're buying discounted funds at 7% yields, do you really care?"

As I am buying the dips today it crossed my mind to wait as I feel this virus could really cause a lot of problems. But, I went ahead and deployed my cash. Your statement made me feel validated on my actions today. Thanks for a well written and timely article!
Reim profile picture
l'm constantly adding to my CEF's. lots today. i'm doing great.
Good info,thanks.
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