All posts by Michael Foster

3 “Tariff-Proof” CEFs You Can Buy Now (7% dividends and upside)


You’re no doubt wondering if there’s anywhere you can invest and still get a decent return—without wincing every time you open your brokerage account.

Good news: there is just such a place. And today I’m going to show it to you—along with three specific “crash-resistant” funds yielding up to 7.1%.

The magical place I’m talking about is an often-ignored corner of the market called closed-end funds (CEFs).

Steady Dividends for Rocky Markets

There’s a weird twist that lets CEFs pay us dividends of 7.1% (and a lot higher) without exposing us to the risk of a surprise payout cut.

It comes down to the fact that several CEFs’ prices (on the open market) trade at a discount to the per-share net asset value (or the liquidation value of their portfolios).

In English?

This means that a CEF’s dividend yield based on NAV—the value that really matters to fund managers—is lower than the yield on market price. That simply makes the dividend easier for management to cover than you might think if you just looked at the “headline” yield.

Aside from a safe yield, these discounts to NAV also give us something else: bargains! Like these three ridiculously cheap, high-yielding and—most important—low-volatility funds:

CEF Pick #1: A Mega-Cap Fund With a Mega 6.8% Dividend

The Nuveen Dow 30 Dynamic Overwrite Fund (DIAX) is a large-cap index fund with a difference: it also sells call options against its portfolio.

Call options are a kind of insurance that essentially protects investors if they’re short the market and think it’s going to go down. DIAX sells those short sellers their insurance, meaning DIAX’s options will go down in value when the market goes up.

That’s one way that DIAX limits its downside. But its downside is already theoretically limited by its mandate: to buy Dow Jones blue-chip stocks. That focus on huge, well-established companies has helped the fund decline a bit less than the S&P 500 itself in this latest selloff:

A Lighter Downside

But that isn’t the best part. DIAX gets cash for selling those call options, and it returns that cash to shareholders. As a result, this fund yields 6.8% based on its market price, a whopping nine times more than the SPDR Dow Jones industrial Average ETF (DIA), which holds the exact same stocks.

CEF Pick #2: A Tax-Free 5.1% Dividend Perfect for the “Tariff Tantrum”

Of course, the best way to avoid stock-market volatility is to avoid stocks altogether. But how do you do that without getting a 0% (and worse, after inflation) return in cash or locking your cash up in Treasuries for 10 years for a crummy (and taxable) 2.4% yield?

The answer? CEFs that hold municipal bonds, such as the Invesco PA Value Municipal Income Trust (VPV). This fund pays a nice 5.1% yield on its market price (4.7% based on NAV) that in reality is even higher for many folks, as that dividend is tax-free.

VPV also lacks the volatility of the market, and the best part is that it’s on sale:

A Sale Appears

With a 9.1% discount to NAV, you’re getting $1 of assets for less than a buck. But since the fund recently traded at a smaller discount, you’ll also likely have a chance to sell VPV for a gain if you hold for just a few months. Plus, the stock is much less volatile than the market (blue line below):

A Smoother Ride 

With nearly half the volatility of the SPDR S&P 500 ETF (SPY), VPV will not see 20% drops in weeks like stocks do. But it will keep paying its big tax-free income stream, month in and month out.

CEF Pick #3: A Bargain Real Estate Buy With a 7.1% Payout

With 2008 being still relatively recent history, it’s easy to think of real estate as risky. But not only is real estate less volatile than equities over the long term, it also beats the market by a pretty big margin.

Real Estate for the Win

The SPDR Dow Jones REIT ETF (RWR) has crushed the S&P 500 over the long haul, with over double the total return. Note that this includes the massive bear market caused by the subprime mortgage crisis, which hit real estate much harder than stocks. Yet RWR is still the big winner.

We can do better than RWR’s 2.2% yield, though. The RMR Real Estate Income Fund (RIF) has a 7.1% yield on market price and trades at a huge 20.8% discount (giving it just a 5.6% yield on NAV). There’s a reason for that discount: RIF’s long-term total returns of 4.3% on NAV are far worse than those of the competition. But that’s history. Thanks to some management adjustments, RIF has been doing much better, and has even started to outperform the REIT index fund:

Outperformance—Finally!

When the market realizes RIF isn’t the dud it used to be, expect its 20% discount to disappear—meaning some very nice price upside to go along with the fund’s 7.1% income stream.

NEW: The 4 CEFs You Must Buy Now (8.7% Dividends, Double-Digit Gains Ahead)

The story you just saw with RIF—a fund that has demolishes the market but is still cheap today—is something I see a lot in CEFs.

A situation like that really is the “sweet spot”: the outperformance shows that management has the chops to beat the market, while the yawning discount to NAV sets you up for even more upside!

And you’ll grab a 7%+ cash dividend while you wait for those gains to kick in!

That’s the exact setup you get with one of my four favorite CEFs now, which I’ll show you when you click right here.This bargain-priced fund focuses on high-yield utilities and real estate stocks, and yields an impressive 7.9%.

For good measure, it’s also thoroughly bested the market this year, with a 22% total return:

A Market-Beating Fund

Despite that gain, this fund is still cheap, trading at a ridiculous 13% discount to NAV. That’s why I’m calling for 20% price upside in the next 12 months, to go along with that rich 7.9% payout!

Michael Foster has just uncovered 4 funds that tick off ALL his boxes for the perfect investment: a 7.4% average payout, steady dividend growth and 20%+ price upside. — but that won’t last long! Grab a piece of the action now, before the market comes to its senses. CLICK HERE and he’ll tell you all about his top 4 high-yield picks.

Source: Contarian Outlook

Alert: This Life-Changing 7% Dividend Is Vanishing Fast

If you’re like, well, everybody, you’ve been mulling these three questions lately:

Is this “tariff tantrum” the end of the bull market? Is it time to sell? Or buy more?

I’ll deal with the first question in a second. Meantime, let’s start with the second one: no, it is not time to sell. Because after all, we need to stay invested to keep our dividend checks rolling in.

What about buying?

Yes, it’s still a great time to buy—especially in one corner of the market where 6%+ dividends are everywhere: closed-end funds (CEFs).

In a moment, I’ll reveal a CEF whose yield recently soared to nearly 7%! That makes it more than worth your attention, as buying now lets you “lock in” that payout before the next rebound drives the share price up—and the yield down as the stock climbs.

Before we get to that, though, let’s dive into what this trade melee means, and doesn’t mean, for stocks.

This Economy Is Already “Tariff-Tested”

The market has clearly spoken, and it hates the new 25% tariffs on $540 billion in Chinese imports. After all, tariffs raise prices on consumers and sideswipe growth, right?

Well, it’s not that simple.

Consider the previous round of tariffs: at 10%, they didn’t result in higher prices (inflation has actually slowed in the last three months). They didn’t hurt GDP growth, either: first-quarter GDP was up 3.2%, blowing away expectations of 2%.

And while it may be true that the economy could handle 10% tariffs, and not necessarily these far bigger 25% tariffs, that argument misses the point. The thing to keep in mind here is that this market’s reaction to the new tariffs is just plain silly.

That’s where our opportunity comes in.

Here’s what I mean: in total, the tariffs will increase the cost of Chinese imports by $80.9 billion. That may sound like a lot, but it’s just 0.4% of America’s GDP—so tiny it’s almost unmeasurable!

Still if the market wants to price in the risk of a shakier economy that’s fine: but how big should that discount be? There’s no right answer to that, but I can tell you the wrong one: the amount that stocks have already lost.

As you can see, the S&P 500’s single-day loss on Monday was more than the total value of all imports from China! What’s more, this number doesn’t include the losses for stocks not in the S&P 500. For instance, the Russell 2000 has lost $273.6 billion, and the entire market has already lost a bit less than $1 trillion, even after Tuesday’s mini-recovery.

This 6.8% Dividend Is Built for a Correction

Clearly this market swing doesn’t make any sense. And situations like that make a CEF like the Nuveen S&P 500 Dynamic Overwrite Fund (SPXX) particularly appealing.

SPXX holds top-quality dividend payers (and growers), many of which are have been hammered in the panic—and therefore have plenty of built-in upside. Those include companies without much China exposure, like JPMorgan Chase & Co. (JPM), Johnson & Johnson (JNJ) and Berkshire Hathaway (BRK.A).

SPXX Lets Us Pick Up Strong Stocks and a 6.8% Dividend

There’s more, too, because SPXX also uses covered calls (a type of option that the fund’s managers sell against the shares SPXX holds) to generate extra income, so the fund can deliver that 6.8% dividend to investors.

These options trades also smooth out SPXX’s volatility, meaning it has posted a smaller drop during this latest correction, as its options go up while the market falls:

SPXX Rarely Dives as Far as the Market

Finally, high dividend yields like that of SPXX give you a better shot at living on dividends alone in retirement—and not having to sell your stocks into a downturn like this latest one to generate extra income.

Doing This Would Be a Big Mistake Right Now

In light of the big hit stocks took in late 2018, you might still be hesitant to buy SPXX—or any stock fund—during this latest volatility. That’s understandable, but you’re making a mistake if you let your 2018 fears keep you on the sidelines.

Here’s why.

While the trade war was one reason for the late-2018 downturn, it was really just a sideshow: that collapse had the Federal Reserve’s name written all over it.

With the Fed raising interest rates at a breakneck pace in 2018, an inverted yield curve looked inevitable, and parts of the Treasury-yield curve did briefly invert. Since an inverted yield curve is the most reliable recession indicator in the world, the fear behind the late-year collapse was understandable.

But the Fed isn’t raising rates anymore.

In fact, the Fed has made it clear that it will not raise rates in 2019, and futures markets are betting that rates may actually go down in 2019:

Possible Rate Cut Could Ignite Stocks—and CEFs

Source: CME Group

Let me leave you with this: the Fed is much more important to the economy than politics could ever be. The Fed’s easy monetary policy is a big reason why GDP growth was 3.2% at the start of the year, and it’s also why company sales and profits will stay strong.

It’s only a matter of time before the market realizes this and regains its footing (though we’ll likely see some bumps in the road first).

Revealed: 4 Shocking Selloff Bargains Yielding Up to 10.7%

SPXX isn’t the only terrific opportunity this correction has handed us. It’s far from the highest yielder worth jumping on, either.

For example, consider the ignored CEF my team and I have uncovered: it boasts something most people will tell you is impossible: a 10.7% dividend that’s growing triple digits!

That’s right: this unsung fund yields a mammoth 10.7% as I write, and its payout has exploded 150% in the last decade:

1 Click for a Massive Yield and Soaring Payout Growth

How does this fund do it?

My 10.7%-paying pick is run by a hand-picked investment “all-star team.” These pros have quietly assembled a “no-gimmicks” portfolio of value and growth stocks that are great “buy the dip” opportunities now.

I’m talking about the likes of Visa (V), Microsoft (MSFT), Alphabet (GOOGL) and Abbott Laboratories (ABT).

I know what you’re going to ask next: how has this so-called “all-star team” performed in the past?

See for yourself:

A 10.7%-Paying Market Dominator

Best of all, as this monstrous return includes dividends, a huge slice of it was in cash, thanks to my pick’s massive dividend payout.

Oh, and if you hear “investment all-star team” and think “high fees,” fear not. This fund charges just 1.01% of assets, one of the lowest fees in the CEF universe!

Finally, this fund trades at an unreal 5.1% discount as I write. It’s only a matter of time before that shifts to a massive premium, given this fund’s market dominance, 10.7% yield and 150% dividend growth.

The time to buy is now.

Michael Foster has just uncovered 4 funds that tick off ALL his boxes for the perfect investment: a 7.4% average payout, steady dividend growth and 20%+ price upside. — but that won’t last long! Grab a piece of the action now, before the market comes to its senses. CLICK HERE and he’ll tell you all about his top 4 high-yield picks.

Source: Contrarian Outlook

This 9.2% Dividend Is On Sale (11% Off!)

I’ve uncovered two high-yield closed-end funds (CEFs) that are perfect for this “earnings down, stocks up” market.

I’m going to show you both of these bargain-priced, cash-spinning plays—one of which yields an incredible 9.2%, five times more than the typical S&P 500 stock—shortly.

First, we need to talk about where stocks stand now. Because you’re probably wondering how the market can keep ticking up when first-quarter earnings are actually down from a year ago.

You’re right to be concerned, because it makes zero sense—on the surface. But dig deeper and you’ll see that this is a good news story, and a perfect opportunity for contrarians like us to grab big gains (and dividends).

Let’s get into it.

When a Loss Is a Gain

With earnings season half over, profits have fallen 2.3% year over year. That sounds bad, but it’s actually better than the 4% drop analysts predicted before the season started.

The reason? Surprises. A total of 77% of companies are reporting earnings above estimates, thanks to better-than-expected 5.1% sales growth. Sales are the lifeblood of profits, so this makes it easier to beat profit expectations.

Those earnings beats are also evenly distributed across sectors, with over half of companies in all sectors showing better-than-expected results:

Beating Expectations Across the Board

Again, the common theme is that sales are growing across sectors: people are buying more stuff, and that’s helping earnings across the market.

But Why Are Earnings Down?

That brings us to the question of why earnings are down at all. If things are so good, why aren’t profits up? There are two answers: the first is that year-ago profits were so strong that they’re tough to build on.

A Big Hill to Climb

In the first quarter of 2018, earnings jumped 24.7% and stayed at that level for the next two quarters. As you can see above, such growth is unusual—and a tough act to follow!

That’s why analysts were modest in their earnings estimates for this quarter. But now earnings are coming close to the mark set a year ago, showing that the economy is still strong, and companies are still in great shape.

The second reason for the lack of earnings growth is that the first quarter tends to be weak. The post-holiday period is no time to load up the credit card, so Q1 expectations are often modest.

In fact, any growth in the first quarter following growth a year earlier is exceptional. That makes 2018’s 24.7% profit jump unusual, since it followed 14% growth a year previous. To expect three straight years of first-quarter growth would be very optimistic indeed.

The takeaway? The economy isn’t getting overheated but isn’t cooling down, either.

Next Leg of Growth About to Kick Off

With first-quarter economic growth ticking along at 3.2%, according to the Commerce Department, it’s no surprise that companies are seeing sales jump 5.1%. That growth also positions them up to expand their operations and set themselves up for higher sales and profits in the future. And companies are doing just that: they spent more on buying, building and upgrading assets in 2018, and that trend is continuing.

But the market hasn’t priced this growth in—not even close. And this is where our opportunity shows up.

A Buying Opportunity in Disguise

Stocks are up less than 10% since before earnings saw three consecutive quarters of 25% growth, which is below the average return stocks deliver in the long term. That means it isn’t too late to get into the market, even if the rebound we’ve seen this year makes it feel that way.

And you’ll be able to buy in even cheaper with the two CEFs I mentioned off the top. Let’s move on to those now.

Two CEFs to Ride the Market Higher (and bag yields up to 9.2%)

Our first high-yield play is the Boulder Growth & Income Fund (BIF), which focuses on bargain-priced large caps. This fund holds much of its portfolio in Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B), along with other top-quality stocks like JPMorgan (JPM) and American Express (AXP).

So why buy BIF instead of cutting out the middleman and just buying its collection of well-known names on your own?

Simple: as I write, BIF trades at a massive 16.8% discount to net asset value (or NAV, another name for the value of the stocks the fund owns). That means you’re getting these top-quality large caps for 87 cents on the dollar! And while BIF’s 3.7% dividend yield is low for a CEF, it’s still double what the typical S&P 500 name pays.

Finally, you can juice your income stream more with the 9.2%-yielding Cohen & Steers Income Builder (INB), holder of some of the best companies in America, with Microsoft (MSFT)Visa (V)Philip Morris (PM) and Amazon (AMZN) standing out among its top holdings.

Here’s the key point to remember about INB: its NAV has returned 14.2% this year (including dividends and price gains). But investors are giving it very little credit, because the fund still trades at 10.8% below its NAV! That’s one of the widest gaps in the CEF space, and it points to more upside as that discount narrows.

NEW: The 4 CEFs You Must Buy Now (8.7% Dividends, Double-Digit Gains Ahead)

As I just showed you, stocks are still a great buy as investors (slowly) discover there’s still time to get in on this “goldilocks” economy.

And as you saw with BIF and INB, you’ll do better (and grab far higher dividends) if you make your move through a CEF. The best of these funds give you the best of all worlds: huge dividends, market outperformance and bargain prices—often all in one buy.

I know that sounds crazy: a fund that’s still cheap even after a monster gain. But it’s a familiar story with CEFs, thanks to their weird discounts to NAV.

Consider one of my four favorite CEFs now, which I’ll show you when you click right here. This fund focuses on high-yield utilities and real estate stocks, yields an impressive 7.9% and has thoroughly bested the market this year, with a 23% return:

A Market-Beating Fund

Here’s the surprising part: despite that gain, this fund is still cheap! It trades at a 13% discount to NAV, which gives us two advantages you’ll never get buying stocks individually or through an ETF. That’s why I’m forecasting 20% price upside in the next 12 months, to go with that rich 7.9% payout.

Michael Foster has just uncovered 4 funds that tick off ALL his boxes for the perfect investment: a 7.4% average payout, steady dividend growth and 20%+ price upside. — but that won’t last long! Grab a piece of the action now, before the market comes to its senses. CLICK HERE and he’ll tell you all about his top 4 high-yield picks.

Source: Contarian Outlook

5 CEFs That Crush the Market and Yield Up to 8%

Something very weird is happening with high-yield closed-end funds (CEFs): many of them are ridiculously cheap, despite soaring double-digits this year.

(And when I say these are “high-yield” funds, I mean it: nearly all of the five funds I’ll show you shortly yield 7% and up!)

I know that sounds impossible: a big run-up and a bargain in one buy?

It’s true—and it’s the beauty of CEFs: unlike with mutual funds and ETFs, CEFs’ market prices can swing massively from the net asset value (NAV) of their portfolios. That’s because investors often ignore CEFs and fail to bid them up to what they’d be worth if they were liquidated tomorrow.

Situations like that are common in CEF land, and sometimes a fund is badly managed enough to deserve a huge discount. But today, many well-run, top-performing CEFs—including the five below—are priced like laggards. That nicely sets us up to grab more upside to go with their outsized dividends.

Dividend and Income Fund (DNI)
Discount to NAV: 24%
Year-to-Date Total Price Return: 25.8%
Dividend Yield: 6.9%

The S&P 500’s 17.7% return this year is good, but DNI’s 25.8% is better. And that’s an apples-to-apples comparison, by the way, because DNI has a mid-cap portfolio full of S&P 500 stocks like the Walt Disney Co. (DIS), Home Depot (HD) and Apple (AAPL). But DNI’s portfolio is more value-focused, which is why it’s crushing the index.

DNI doesn’t just offer outperformance, either: its near-7% dividend is also more than three times bigger than that of the benchmark SPDR S&P 500 ETF (SPY). In other words, DNI gives you $575 in monthly income per $100,000 invested, while SPY delivers a paltry $149.17.

New Germany Fund (GF)
Discount to NAV: 12.3%
Year-to-Date Total Price Return: 25.6%
Dividend Yield: 1.2%

Germany is having a good year, but GF is having a better one. While the iShares MSCI Germany ETF (EWG) has gained 12.7% in 2019, GF, with its experienced management team, has posted a gain twice that big. This isn’t an anomaly; since its 1998 IPO, GF is up 3.6 times as much as EWG.

So why the big discount if GF is the best way to get in on Germany’s growth? It’s simple: dividends. Most CEF investors are income-crazy, and GF’s 1.2% yield doesn’t excite them. But that’s shortsighted, because GF often pays special dividends, like the 20% payout at the end of 2018. In fact, GF has been paying an annualized double-digit yield for nearly a decade.

Kayne Anderson Midstream Energy Fund (KMF)
Discount to NAV: 12%
Year-to-Date Total Price Return: 28.5%
Dividend Yield: 7.6%

If you’re looking for oil and gas exposure, you’re best to go with an energy specialist like Kayne Anderson. The company’s energy CEFs tend to outperform their indexes over the long term, thanks to the Texas-based management team’s unique market access: KMF combines private-equity investments with well-known publicly traded energy firms like the Williams Companies (WMB), Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD).

It’s no surprise, then, that KMF’s 28.5% total return this year is way ahead of the 17.7% return of the benchmark Alerian MLP ETF (AMLP). And KMF continues to maintain a 7.6% dividend yield, giving you a nice income stream with your energy exposure.

Salient Midstream & MLP Fund (SMM)
Discount to NAV: 15.1%
Year-to-Date Total Price Return: 25.9%
Dividend Yield: 7.7%

Similar to KMF, Salient’s SMM has crushed the market with its 25.9% return while also maintaining an impressive 7.7% payout. However, unlike Kayne Anderson, Salient focuses on publicly traded shares, which, at least in theory, gives it more liquidity in case of a sudden run on energy investments.

Here’s why this matters: if you want some energy exposure but you’re worried about a sudden shock to oil prices, you may have concerns about a fund that puts some of its assets in smaller investments, like KMF does. In theory, this higher liquidity could help increase SMM’s long-term return, even if oil and gas hit some bumps in the road.

Brookfield Global Listed Infrastructure Income Fund (INF)
Discount to NAV: 14.4%
Year-to-Date Total Price Return: 27%
Dividend Yield: 8%

Brookfield has a long history of investing in infrastructure projects, meaning management has developed a keen eye for undervalued stocks in that sector.

That’s why INF’s 27% return trumps the 14% return you’d have gotten with the SPDR S&P Global Infrastructure ETF (GII) this year, although both funds focus on large-cap infrastructure stocks around the world.

Like the index fund, INF’s portfolio tends to have around half its assets abroad, although recently that’s been closer to a third due to the fund’s savvy bet on a stronger dollar. That’s a big reason why INF’s return has nearly doubled up that of the index, and this approach goes a long way toward easing any worry you may have about being exposed to the wrong currency at the wrong time.

Here’s a SAFE 9.8% Cash Dividend (with upside!) to Buy Now

I’ve uncovered 5 more CEFs boasting even bigger upside in the next 12 months, thanks to their yawning discounts to NAV.

Taken together, the 5 ironclad funds I’ll reveal right here boast an 8.3% average yield—so you’re bagging a cool $8,300 a year in dividends on a $100K nest egg! And one of these CEFs even pays out an incredible 9.8% dividend now.

In other words, if you were to cherry-pick that one fund, $9,800 would come straight back to you, in cash, every year on your $100K.

This cash-rich buy is a biotech fund that’s a perfect contrarian play right now, due to overblown headlines surrounding the healthcare business.

But we love overhyped news reports, because they give us the cheap entry points we need to grab top-notch funds like this cheap. Right now, for example, you can pick up this CEF at a fire-sale 8.4% discount to NAV, or just under 92 cents for every dollar of assets!

That’s totally out of whack when you consider that my pick has dominated in the last decade:

Another Cheap Outperformer

And remember that, thanks to that huge 9.8% dividend, almost all of this gain was in cash. No wonder this fund usually trades at a big premium to NAV—which is why we need to make our move now, before this bargain sale ends.

Michael Foster has just uncovered 4 funds that tick off ALL his boxes for the perfect investment: a 7.4% average payout, steady dividend growth and 20%+ price upside. — but that won’t last long! Grab a piece of the action now, before the market comes to its senses. CLICK HERE and he’ll tell you all about his top 4 high-yield picks.

Source: Contrarian Outlook

Revealed: The One CEF-Picking Strategy I Use Every Day

Today I’m going to peer into my crystal ball and give you the scoop on where high-yield closed-end funds (CEFs)might be headed in 2019.

Then I’ll give you a proven way to zero in on the ones that are the best bargains for your portfolio now.

CEFs Come Out Flying

First, if you own stocks through CEFs (and if you don’t, click here to discover why these 7%+ payers are a retirement “must-have”), you’re already outrunning the market: my CEF Insider Equity Sub-Index—a great proxy for stock-owning CEFs—is up 13.7% since January 1, a nice lead on the S&P 500’s 12.3% gain.

Even better, CEFs are cruising upward without getting ahead of themselves—exactly what we want in a rock-solid income play. As you can see below, 85% of these funds are still cheap when you compare their market prices to their net asset values (NAVs, or the liquidation value of their portfolios):

CEFs Are Still Bargains …

Source: CEF Insider

Even better for those of us on the hunt for cheap, outsized dividends, well over half of CEFs are trading at discounts bigger than their long-term averages:

… and Discounts Are Bigger Than Ever

Source: CEF Insider

That points to even more upside for us this year, as we tap the incredible 7%+ dividend payouts you can grab from CEFs (including the 18 in our CEF Insider service’s portfolio, which yield an outsized 7.3%, on average, as I write this)

Two Numbers Point to Big CEF Bargains (and Ripoffs, Too)

So how do we hone in on the highest, safest dividends in the CEF space while hedging our downside?

A great strategy (and one I use myself) is to look at funds where NAV and market-price returns vary widely, then spot whether this gap is justified by what’s happening in the market or in the fund itself.

To see this in action, let’s look at the CEFs with the best and worst returns so far this year, by both market price and NAV, plus the fund with the biggest difference between the two:

Let’s start with the Morgan Stanley China A Share Fund (CAF), which fell 18% on a NAV basis and 14.3% on a market-price basis in 2018. That mimicked the Chinese market, which dropped 19.2% last year.

Thus, the fund’s market-price and NAV rebounds in 2019 reflect investors returning to Chinese stocks, which is also driving CAF’s premium to spike suddenly—a common move for the fund after a selloff:

CAF Gets Pricey After a Huge Run

The risks here are clear, but they’re also pretty closely tied to those of Chinese stocks as a whole.

Let’s skip ahead to the India Fund (IIF), because the story there is similar. IIF’s weak NAV return and market return are the result of India’s economy, which is expected to see slowing growth in 2019 and 2020 after beginning to ratchet back in late 2018. Recent tensions with Pakistan don’t help things, so this fund’s decline is pretty rational and unsurprising.

Now let’s consider the Duff & Phelps Select Energy MLP & Midstream Energy Fund (DSE), whose huge NAV return is better than the energy sector’s 15.5% gain for 2019.

Part of DSE’s strong showing in 2019 stems from energy’s rise, but there’s something going on inside the fund, too. In late November, DSE began shifting from investing in energy MLPs to midstream MLPs, a more narrow sector that was extremely oversold in 2018, so has bounced back fast in 2019.

The timing of that change was particularly good, narrowing DSE’s discount slightly, to 9.9%, from where it was in November. Again, a rational response to a change in the fund’s fundamentals.

When a High Yield Signals Danger

Finally, what’s up with the Stone Harbor Emerging Markets Income Fund (EDF) and the huge discrepancy between its market price and NAV returns? This is where we see the irrationality of the CEF world really shine through.

EDF is a poorly performing emerging-market fund with a high expense ratio (2.96%!). Despite those massive fees, the fund’s total NAV return over the last five years has been a measly 3.4% annualized, far below the S&P 500 and hundreds of other CEFs.

This is partly due to the complex emerging-market debt the fund invests in, partly due to fees and partly due to poor decisions, like holding over 10% of its assets in Argentinian debt (yes, the country that has defaulted more than once). This is a fund that should be sold cheap, but its current premium to NAV is not only one of the highest of any CEF, it’s at an all-time high:

Lousy Performance Brings … a Premium!?

Why has that premium been climbing lately? Yield-chasers are driving up its market price: EDF has never cut its dividend and now pays a shocking 15.9% yield. If you only look at that yield, this seems great. But unfortunately, EDF’s returns are less than a quarter of its yield, which means its dividend is not being covered by gains and will be cut.

And while first-level investors have driven EDF’s price sky-high, the fund is a rarity now; many CEFs are fairly priced (and quite a few are still cheap!), despite strong gains so far this year.

Yours Now: 8.3% Dividends and Big Gains From America’s Top Stocks

CEFs’ discounts to NAV make them hands down the best way to buy stocks.

Why?

Because these weird markdowns are basically free money! Why would you buy a “regular” stock when you could buy through a CEF and get it for 10% to 20% off? It’s a no-brainer!

And don’t let EDF’s spooky 16% dividend drive you away—there are plenty of CEFs paying safe high single- and double-digit dividends, and some even pay them monthly!

Take my 5 favorite CEF picks now (which I’ll reveal when you click right here). They throw off life-changing 8.3% average dividend payouts!

My top pick of the bunch holds some of the best stocks in the pharma and biotech sectors and has clobbered the market, with a monstrous 904% return since inception:

This Market-Slayer Is Still Cheap!

Plus, this fund throws off an incredible 9.8% dividend!

And as I write, this stout income play—which has traded at fat premiums many times in the past—goes for a totally unusual 7% discount. That sets us up for even more “bounce back” upside while we pocket that huge 9.8% payout!

Don’t Be Fooled: This 13.7% Dividend Is Deadly

Today I’m going to show you a closed-end fund (CEF) yielding 13.7% that sounds—and is—too good to be true.

If you hold it, now is the time to sell.

The fund I’m talking about is Eagle Point Credit Company (ECC). Today we’re going to dive into all the reasons why ECC is a CEF to avoid. I’ll also give you five takeaway tips you can use to steer clear of funds like it in the future.

Let’s get started.

CEF Danger Sign No. 1: NAV and Market Price Go Haywire

As you can see below, ECC recently saw its net asset value, or NAV, plummet 26%, erasing three years of gains overnight:

ECC’s Underlying Portfolio Collapses …

In a normal situation, you’d expect investors to sell fast. But in the world of CEFs, things don’t always happen that way. Zooming in on the past two months, when this NAV crush occurred, we see that the fund’s price actually soared.

… And Investors Cheer!? 

This is obviously an extreme example, but when a CEF’s market price soars while its NAV heads south, it’s time to pay extra attention. Which leads me to my second red flag.

CEF Danger Sign No. 2: What Goes Up …

The widening chasm between ECC’s market price and NAV has put the fund’s investors in a dangerous spot, because it’s sent its premium to NAV soaring to the highest point in history in a very short period—and that can’t last. Check out this chart:

Stratospheric Premium Has One Way to Go

Such a poor NAV performance shouldn’t be rewarded with such a high premium, yet here we are. That leads us to the inevitable question: what caused ECC to lose a quarter of its NAV so quickly—and why didn’t investors respond immediately? Cue up my next warning sign.

CEF Danger Sign No. 3: The Fund Holds Complex, Hard-to-Value Investments

A major problem with ECC is that it only announces its official NAV with every quarterly earnings release, along with a rough estimate every month. This isn’t the norm for CEFs. Of the near-500 CEFs tracked by CEF Insider, 99% report NAV on a daily basis. But you don’t know what ECC’s portfolio is worth until it announces earnings each quarter.

This has to do with the collateralized loan obligations (CLOs) ECC invests in. CLOs are a type of derivative on loans similar to the mortgage-backed securities that tanked the economy in 2008.

CLOs pool a variety of loans, then cut these pools into sections investors can trade on the secondary market. These complicated assets aren’t traded daily, which makes it tough to mark them to market (or determine their NAV if they were all sold immediately). That’s why ECC only does this once a quarter.

As a result, you could buy ECC at what you think is a big discount only to find out, days or weeks later, that you actually bought at a premium.

CEF Danger Sign #4: High Fees

ECC is also expensive from a fee perspective, as we can glean from the table below.

High Fees Hurt Shareholder Profits

Source: Securities and Exchange Commission

There’s a lot going on here, but you only need to look at two numbers: total investment income of $69,680,994 (near the top) and $34,987,094 in net expenses (two-thirds of the way down). Over half the fund’s profits went to a variety of fees! As a result, ECC’s fees amounted to a whopping 12.3% of its NAV in 2018.

CEF Danger Sign No. 5: A Shift in the Fund’s Sector

I’ve left the biggest reason for ECC’s underperformance for last: the late-2018 market crash and a sea change with CLOs themselves. If we look at the Palmer Square CLO Debt Index, we see that CLOs’ value took a hit at the end of 2018—as did just about everything else:

A Massive Drop for CLOs

As a CLO fund, ECC is expected to drop with the index, but we should still ask why the index plunged in the first place. Late 2018’s selloff is part of the story, but interest rates are another part. That’s because CLOs have benefited from the rising-rate environment we’ve seen since 2015, as higher rates boost their interest income:

CLOs Rise With Rates

However, the Federal Reserve has made it clear that the aggressive rate-hike plans it laid out in 2018 won’t happen in 2019. And the fact that CLOs had priced in a long string of rate increases caused them to crash in late 2018.

They should have stayed down, but irrational exuberance kicked in, making CLOs—and ECC itself—overvalued again.

These 3 Funds Are Headed for a Crash. Do You Own Them?

The 2019 rebound has done a lot to revive most people’s portfolios. But there’s a new trap you need to dodge as the market ticks up: the risk you’ll stumble into an overbought stock (or fund).

But don’t take that to mean stocks are pricey—far from it! The S&P 500 is barely up from the start of 2018 and still far from its all-time highs, which is ridiculous when you consider last year’s near-20% earnings growth.

So it’s pretty easy to see that stocks are still ripe for buying.

But there is one sector I am worried about—and it brings me to the first of 3 closed-end funds (CEFs) I want to warn you about today.

I’m talking about energy stocks, which have been on a tear so far this year, as you can see from the performance of the benchmark Energy Select Sector SPDR ETF (XLE):

Energy Gets Ahead of Itself

Trouble is, that growth isn’t supported by earnings! In fact, profits in the sector have actually fallen nearly 6%, according to FactSet. And the CEF I’m going to tell you about now has actually run up even more than XLE, despite massively underperforming the market.

That would be the Tortoise Energy Independence Fund (NDP), which has soared a shocking 37% since the start of 2019. Investors holding this fund probably feel pretty smug about that gain, but they shouldn’t. While NDP’s market price is up big, its NAV (or the value of its underlying portfolio) is up just 7.1%, a fair amount behind XLE’s gain.

Snapshot of an Overbought Fund

The main reason for NDP’s meteoric rise is classic yield chasing: many are enticed by this fund’s astronomical 18.7% yield. But that is a mirage; not only has NDP cut its dividend massively throughout its history, but it is currently under-earning its dividend, which means yet another cut is coming soon.

The fund is also down on a total-return basis (so even when taking dividends into account!) since its inception, no thanks to the 2014 oil crash. But even before that, its returns were less than impressive:

A Perennial Money Loser

For this reason, NDP is my No. 1 must-sell CEF right now.

But it’s not the only one to run away from. The PIMCO Global StocksPLUS & Income Fund (PGP) is a complex bond-and-derivatives fund whose market price has also run far ahead of its NAV, and not by a little, either! PGP has soared 24.5% in 2019, while its NAV is only up 4.5%:

PGP Steps Onto the Precipice

As a result, PGP’s premium to NAV is now an absurd 56%, which means it’s positioned for a crash anytime now.

If this sounds familiar, it should. I’ve written about PGP’s huge premium many times before, noting how easy it is to swing trade this fund for 40% annualized gains if you buy it when its premium gets too low and sell when its premium is too high. Right now we’re at a clear sell point, just like the one I spotlighted in August after recommending investors play PGP for a short-term trade in June. Investors who followed that advice bagged a 39% annualized return in less than three months.

Now we’re at a crest in the wave, so if you have PGP in your portfolio, this is the time to ditch it.

One more fund we need to be wary of: the Virtus Global Dividend & Income Fund (ZTR), which did something unusual just over a year ago: it traded at a premium for the first time ever.

A Suddenly Costly Fund

Although that premium disappeared during the recent market crashes, ZTR investors don’t care. They’re buying at a 5.1% premium for no good reason, since ZTR both underperforms its peers and the Vanguard Total World Stock Fund (VT) over the long haul.

Trailing the Market

Since ZTR’s NAV is up a measly 4.2% in 2019, while its market price is up a shocking 18.6%, it is clearly overbought—which means it’s time to walk away.

Here’s a SAFE 8.5% Cash Dividend for 2019

I don’t know why anyone would play around with looming disasters like ZTR, PGP and NDP when the CEF market continues to throw us bargain after bargain.

In fact, I’ve got 18 of the very best deals in the space waiting for you now! As a group, these 18 retirement lifesavers throw off an incredible 8.5% dividend!

1 Click for 35% Gains and 7.2% Dividends in 2019

If you’re like most people, you’re wondering one thing right now: can stocks keep soaring following December’s nosedive—even after spiking 8% in January?

The answer? Absolutely.

To get at why I’m so sure, we’ll first go a couple steps further than headline-driven “first-level” investors do. Then I’ll give you a way you could double (or more) your rebound gains thanks to a terrific closed-end fund (CEF) yielding 7.2%—and “spring loaded” for 35% returns this year.

The Ignored Connection Between Jobs and Stocks

To get at what’s in store for the markets in 2019, we have to go back to 2009 and zero in on one thing: jobs. Because the crisis back then triggered a lost decade that only ended in 2017, when the unemployment rate finally got back to pre-crisis levels.

Then something strange happened—unemployment kept falling. In January, payroll data rose to one of the highest levels ever, blowing away even the rosiest estimates.

In such a job market, inflation seems like a sure thing. After all, when everyone who wants a job can get one and more jobs are created every day, employers will need to pay higher wages to keep the workers they have. And consumers will open their wallets, confident they’ll be earning more. But we’re not seeing that:

Inflation Defies Expectations

This has stumped many economists, because it’s normally a given that lower unemployment stokes inflation. But there’s a simple explanation for what’s happening today, and it comes back to folks who are unwillingly out of the workforce.

Here’s what I mean: the government measures unemployment by looking at what percentage of people are in the labor force, then looking at what percentage of those people don’t have jobs. But people can choose to be in or out of the labor force at any given time—and plenty of people have made an exit in the last decade:

US Workforce Shrinks—Till Now

For much of the 2010s, the unemployment rate wasn’t falling because more people were getting jobs—it was falling because more people gave up on getting jobs. But workforce numbers flat-lined since 2015 and began rising in late 2018. In short, Americans who’d thrown up their hands are getting back in the game.

That means inflation could be a risk in the future, when all those who left the labor force have come back, but we’re a long way from that.

In sheer numbers, think of it this way: 66% of 306 million people were in the labor force in 2007. That’s 202 million men and women. We’re now down to 63.2% of 327.16 million, or 206.8 million people. Another way to think about it: in the last 12 years, our labor force is up just 1.6% while our population is up 6.9%.

This is unsustainable: America needs more workers to keep up with its bigger population.

“A Rare Time When You Can Buy Stocks at a Discount”

This all means the market recovery will likely continue, because there’s too much demand for workers—and workers have too much money to spend—to cause a market hiccup. Better still, we’re at a rare time when you can buy stocks at a discount—and an even bigger discount is on the table for us, thanks to closed-end funds (CEFs).

Let me explain.

CEFs slipped in 2018, only to start recovering in early 2019:

CEFs Tumble … Then Bounce Back

But as you can see, CEFs still haven’t fully recovered—and there’s still a big gap between their 2018 peak and where they are now, even though CEFs’ year-to-date recovery has beaten the S&P 500’s 9.1% bounce, with the CEF InsiderEquity Sub-Index up 11.1% in 2019.

That tells me that this could be another year where CEFs outperform, as they did in 2017. And they’re likely to do so for the same reason: they were oversold in the prior year.

The One Fund to Buy for 35% Gains (and 7.2% Dividends) in 2019

Which brings me to the Dividend and Income Fund (DNI), which focuses on bargain-priced US stocks like Apple (AAPL), Intel (INTC) and the Walt Disney Company (DIS). DNI is now signaling that it’s in the early stages of a huge recovery. Look at its outsized return in 2019 so far:

The Rally Is On!

But DNI still falls short of where it was in early 2018, so it has plenty of runway ahead:

DNI’s Ride Is Just Beginning

How high can DNI go? If we track its 2017 performance from when it got absurdly oversold at the end of 2016 (as it was absurdly oversold at the end of 2018), we see that a 35% return was in the cards:

History Looks Set to Repeat

And since DNI’s decline in ’16 wasn’t as severe as in ’18, there’s a good chance this year’s return will be even bigger than 35%.

One reason why I’m confident is that the fund’s unusually large 23% discount to net asset value (NAV, or the market price of its underlying portfolio) means that, just to sustain that discount, for every 1% its NAV gains, DNI’s price will have to go up 1.3%. If the market wants to make that discount disappear (as it did in 2017), its price will obviously have to go up much more than 1.3% for every 1% of NAV gains.

The kicker? DNI yields an outsized 7.2% now, so you’re getting around 20% of your potential 35% return in cash here.

Better still, DNI is far from your only choice: there are many other CEFs yielding as much or more than this fund and also look set to clobber the S&P 500. And these income wonders invest in similar top-notch (and cheap) US companies.

Which brings me to …

Source: Contrarian Outlook

Quiet Shift Reveals Huge 8.8% Cash Payout

It happened so quietly, you may not have even noticed. But the script has flipped on interest rates—and today I’m going to give you my favorite way to profit. (hint: this buy pays an 8.8% dividend—enough to hand you $8,800 a year in cash on every $100k invested—and is poised for quick 10% price upside, too!).

Let’s start at the beginning.

A Low-Key 180

I’m sure I don’t have to tell you that the big story of the last three years has been the Fed’s aggressive rate hikes. But the big story of the next three years will likely be a lack of aggressive rate hikes.

The change happened fast—at just one Fed meeting in January—and the market now expects zero hikes in 2019. Funny thing is, our best buy for this new world is a group of investments that, if you relied solely on the headlines, you’d think are some of the worst things you could own now.

I’m talking about floating-rate loans, which should rise in value as rates go up. But the Fed’s move to no hikes this year has actually created a great contrarian buying opportunity here.

Floating-Rate Loans Have Been a Wildcard

Floating-rate loans were touted as a way to profit from higher rates since the Fed started hiking in late 2015, but there’s been a problem: reality kept butting against this theory.

Floating-Rate Loans Freeze Up

Despite the rising-rate cycle kicking off in December 2015, the benchmark iShares Floating Rate Bond ETF (FLOT) went nowhere following a brief, small bump in early 2016. And investors were no doubt frustrated with the 1% gain they got in the years they held FLOT, before kissing most of that gain goodbye in the late-2018 market panic.

In short: floating-rate loans, for much of this period, didn’t work as planned.

But now is a great time for floating-rate loans, even though the Fed rate is likely to flat-line. Because just as theory didn’t translate to reality by using these loans to profit from higher rates, the theory that their value will go down in value as rates fail to rise is equally unrealistic.

That’s because the recent fall in floating-rate-loan values has nothing to do with interest rates.

The floating-rate loan market saw a huge drop in late 2018 for two reasons: 1) There was a record number of loans in the market, due to lenders choosing floating-rates over corporate bonds (thus increasing supply and limiting price growth); and 2) There was a panic as investors feared lenders would default on their loans due to bankruptcies caused by an economic crash.

The second fear is already proving to be nonsense: not only is there no crash, but employment and corporate earnings seem likely to keep improving in 2019, even after a strong 2018. The first issue, however, is also disappearing—but many people don’t know about it.

Instead of using floating-rate loans, as they did in 2018, more US companies are going back to raising cash by issuing corporate debt in the form of bonds. They are even doing this in unusual and unexpected situations. The Financial Times tells the story of TransDigm (TDG), an aircraft-component manufacturer that used corporate bonds instead of floating-rate loans to fund its $3.8-billion acquisition of aerospace-component maker Esterline.

Commenting on the deal, TwentyFour Asset Management Head of Credit David Norris told the Financial Times: “I would typically have expected a company like this, doing an acquisition, to go to the loan market. But they didn’t do that. There are opportunities right now in the high-yield bond market.”

With the decline in the number of floating-rate loans, demand for those still in existence (and the few new ones coming to market) will likely drive up prices, especially since overblown default fears have kept floating-rate loans below their pre-crash levels.

That means there’s a huge buying opportunity for savvy buyers—especially if we get our floating-rate-loan exposure through closed-end funds (CEFs).

Floating-Rate Confusion Hands Us an 8.8% Cash Payout

Since CEFs often pay huge dividends, your chance to grab 7%+ yields from floating-rate funds is now. But which funds to pick?

One of the most discounted floating-rate funds also has one of the biggest yields: the Ares Dynamic Credit Allocation Fund (ARDC) pays a massive 8.8%. It also gets “bounce-back” upside from its 13.1% discount to net asset value (NAV, or the what its underlying loan portfolio is worth). That’s well below the 7.2% discount it achieved in the past year.

As you might suspect, the fund’s name comes from its management team: Ares Management, which runs a number of funds and companies that provide credit to medium-sized businesses, including its business-development company, Ares Capital Corporation (ARCC). Ares Capital is the biggest BDC, with $12.3 billion in assets under management.

That size is important, because it means Ares has deep connections with many borrowers and knows which can pay their bills and which can’t. That has meant an impressive run-up for ARDC since interest rates started rising:

“In the Know” Management Delivers

While investors typically reward ARDC with a steadily rising market price to match its portfolio’s fundamental strength, the fund’s price return is still lagging:

A Rare Buying Opportunity

The takeaway? Now is a great time to tap ARDC for its 8.8% income stream and hold while my expected 10% capital gain from both a strengthening floating-rate-loan market and the fund’s shrinking discount start to appear.

Source: Contrarian Outlook

Warning: These 7.5%+ Dividends Are Circling the Drain

As investment strategist at CEF Insider, it’s my job to tip you off to the best closed-end funds (CEFs) out there. But it’s also my job to steer you away from those that are, well, terrible.

So today we’re going to zero in on four CEFs whose massive dividends (up to 12.7%!) might tempt you to buy. But doing so will lock you into an ever-shrinking income stream while the share price crumbles beneath your feet.

The first red flag? All four of these funds are from Wells Fargo (WFC), a bank that’s been at the center of various scandals for years now, starting with the 2016 fake-account fraud that took down Wells’ CEO at the time.

Wells’ Woeful Venture Into CEFs

Don’t be surprised if you haven’t heard that Wells offers CEFs; it does so through its tiny Wells Fargo Asset Management business. Its CEFs are the Wells Fargo Income Opportunities Fund (EAD), the Wells Fargo Multi-Sector Income Fund (ERC), the Wells Fargo Utilities & High Income Fund (ERH) and the Wells Fargo Global Dividend Opportunity Fund (EOD).

You should never buy any of these funds, despite their enticing yields: EOD pays a monster 12.7%, for example, with ERC’s payout clocking in at 10.9%. (EAD and ERH yield 9.6% and 7.5%, respectively.)

Don’t be tempted—because these seemingly attractive payouts are warning signs.

The Dividend Trap

While many CEFs have great, sustainable payouts upwards of 7%, in the case of all four of Wells’s funds, high yields are masking awful news. To see what I mean, look at this chart:

Payouts in a Death Spiral

Since the recession, all of these funds’ payouts have fallen, with only ERC’s dividend (in orange) showing any signs of not going down the tubes. But if you’re thinking of buying ERC for its 10.9% income stream, don’t bother.

Massive Underperformance

One of the reasons I like some CEFs is that they’ve crushed the “dumb” index funds over a long period. ERC, however, is not one of these stout performers.

Lagging the Index

Since inception, ERC has returned slightly more than half of what the SPDR S&P 500 ETF (SPY), a low-cost index fund that simply tracks the S&P 500, would have given you. And ERC has underperformed almost all of its CEF peers in this time.

And this is the best CEF Wells can offer!

All Laggards

As you can see, not one of Wells Fargo’s funds has managed to beat the fund that couldn’t match the S&P 500. And EOD just recently went from a loss to a measly 1.2% return in total over the last decade! Such obscene underperformance doesn’t deserve anyone’s money. And it definitely doesn’t deserve any fees.

High Fees—But for What?

All of Wells Fargo’s CEFs charge fees, of course, but the scandalous thing is how high those fees are, particularly compared to SPY (which outperformed all of them, let’s remember).

At the cheapest, EAD’s fees are 9.7 times higher than those of SPY, while EOD’s are over 14 times higher. I’m not averse to paying higher fees if they mean better performance—but not only do these funds lag SPY, they lag many other funds that invest in the same type of assets.

The Amazing Shrinking Funds

With that in mind, you should avoid these funds for another reason: as they shrink, Wells Fargo will have less motivation to properly oversee them, and you only have to look at the headlines to see what can happen when the bank takes its eye off the ball.

The following chart shows the net asset value of each of these funds, or the total value of each CEF’s portfolio:

Wells’ CEF Assets Evaporate

The $1 billion EAD once had has shrunk to less than $600 million, with no end in sight, while all of Wells Fargo’s other CEFs continue to shrink. As these funds become a smaller part of Wells Fargo, whose net income was over $20 billion for 2018, the bank could wind end up shutting them down—only after their value and income streams have further melted away.

Your 2019 Action Plan: Beat Wall Street With These 5 Safe 8% Dividends

I don’t know about you, but I’m sick of big Wall Street names like Wells locking in billions in profits while offering us subpar investments like these four funds.

It’s an outrage! Especially when you consider that Wells could easily afford to hire top talent to run these CEFs and deliver a proper return to their investors.

The worst part is that dud funds like these mask the fact that there are many amazing CEFs out there throwing off safe 8%+ cash dividends.

Better yet, many of these top-quality funds are trading at incredible discounts right now, thanks to the recent selloff.

But you won’t hear from them from your advisor—and especially not from big banks like Wells, which are 100% focused on selling their own products, which all too often are unacceptable funds like the ones I just showed you.

Source: Contrarian Outlook