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

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!

With market volatility kicking into high gear, now is the perfect time to talk about one of the biggest questions CEF investors face: how do you know when it’s time to sell a closed-end fund (CEF)?

Unfortunately, there’s no simple answer to that question—and often investors who use conventional sell signals, like a falling market price, will end up selling at the worst time.

That leads me to my cardinal rule with CEFs: it’s easier to know when to buy than when to sell. If the fund is well managed, has a strong track record, is deeply discounted and has a relatively safe dividend, it’s generally a screaming buy. Signs to sell aren’t always so obvious, but they are still there. You just need to know what to look for.

With that in mind, here are three key points to consider when deciding whether to sell a CEF.

No. 1: The Premium is Too High

The first clue that it’s time to sell a CEF is the most obvious: when the fund is overbought, it’s time to dump it.

For instance, take the BlackRock Enhanced International Dividend Trust (BGY), which I recommended to members of my CEF Insider service in March 2017. I chose BGY at that time because its discount had suddenly widened, despite the fact that changes in its portfolio indicated it was well positioned to surge.

The fund did this over the following eight months:

A Fast 20% Return

A big reason for this return: BGY’s unusually large discount of 12% in March steadily closed to a more normal 6.7% in November, when I urged subscribers to sell.

After my sell call, the fund did this:

A Steady Drop

The lesson? Keep track of the discount, and when it gets too narrow (or becomes a premium) relative to its historic average, it’s time to get out of this crowded trade.

No. 2: Pressure on an Entire Sector

Sometimes some outside force will pressure the type of assets the fund invests in. When this happens, sell as fast as possible.

The great thing about CEFs is that, in large part because of their small size and retail-investor base, they react more slowly and over a longer period to bad news than more popular ETFs. This means anyone who keeps up with the news and invests in CEFs has more leeway to respond to the market and sell.

A clear example of this happened with a municipal-bond fund in late 2017: the Invesco PA Value Municipal Income Trust (VPV).

I recommended this fund to CEF Insider members in March 2017 for familiar reasons: a great and reliable dividend yield, strong management and an unusually big discount. And the fund delivered over the next few months, even outperforming the municipal-bond index ETF that tracks VPV’s benchmark:

Cheap VPV Beats the “Dumb” Index Fund

Then a major news event happened in September 2017 that prompted me to release a sell alert: S&P Global Ratings downgraded Pennsylvania’s bonds, and the state did not immediately respond to the market’s concerns.

The combination of a downgrade and lawmakers’ refusal to address it was a crystal-clear sell signal. VPV did this in the five months after we unloaded it:

VPV Takes a Fast Dive

For a municipal-bond fund, this is a big move in a short time. And all it took to avoid this short-term pain was to follow the news and react in a timely way.

No. 3: Get Defensive in a Bear Market

My third point is something that hasn’t yet happened since we launched CEF Insider, although I do believe it is a couple years away: a recession and bear market.

Every investor dreams of avoiding plunges like 2008/09. No one can steer clear of losses all the time, of course, but it is possible to defend your portfolio while continuing to collect the 7%+ dividend streams our CEF Insider picks hand us.

The key is to keep a watchful eye for four economic warning signs: rising unemployment, slower wage growth and consumer spending and, above all, the so-called “inverted yield curve.” That’s when the spread between 2-year and 10-year Treasury yields goes negative; in the past, it’s correctly indicated a recession within the following 12 months.

Below the Black Line Means Danger Ahead

The financial press has spilled a lot of ink about the inverted yield curve recently, because in the last year it’s tanked to its lowest point since just before the 2008/09 meltdown.

But we haven’t seen an inverted yield curve yet. When we do, it’s time to emphasize defensive CEF sectors, especially if it’s accompanied by rising unemployment and falling wages. The appearance of an inverted yield curve is also a very good time to prune weaker CEFs from your holdings, such as those with flaws like the ones I showed you in points 1 and 2.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.

One of the greatest things about closed-end funds (CEFs) is that they often cost less than they’re really worth.

And no, I’m not basing that on some obscure metric—I’m literally talking about the difference between the market price of the assets the fund owns and the market price of the fund itself.

It works like this: a CEF can trade for, say, $9.90, even though all the assets the fund holds (known as the net asset value, or NAV) are worth $10. Believe it or not, this happens a lot—it’s exactly how billionaire investors make big money in CEFs.

Take, for instance, Boaz Weinstein of Saba Capital Management. He’s a pretty big name on Wall Street for one reason: he was the guy who took down the so-called “London Whale,” a reckless trader with JPMorgan Chase & Co. (JPM) who racked up $6 billion in losses on phenomenally dumb bets.

Weinstein was the guy on the other side of those bets.

And now Weinstein has another lopsided Wall Street mistake in his crosshairs, and it has everything to do with closed-end funds.

As I told you last year, Weinstein stated that he was betting big on CEFs, spotting an opportunity to buy these funds, which were heavily discounted at the time, and waiting for the market to clue in to the big profits they offered.

Here’s how our CEF Insider equity indexes have done since Weinstein’s big bet:

A Steady Profit

Source: CEF Insider

Even after the recent volatility, these funds are up around 15% from a year ago. The best news is that there are still a lot of discounted CEFs floating around, despite this gain, so if you want to get in on the action, you’re not too late.

Which brings me to the 2 CEFs I’ll show you now.

2 CEFs Selling for Up to 19% Off

Let’s start with the Eagle Growth & Income Opportunities Fund (EGIF), which is a tiny, $111.5-million fund trading at a huge 16.8% discount to NAV. If you think this is because EGIF is holding dangerous stuff, think again; many holdings are value stocks with strong cash flows, like AT&T (T), Phillip Morris (PM) and Cisco Systems (CSCO).

Buy these stocks on the open market or hold them through a value-stock mutual fund or ETF and you’ll get $100 worth of stocks for every $100 you put in.

But with EGIF, you’ll get $100 of stocks for $83.20, thanks to that absurd discount to NAV.

Why else should you consider EGIF now?

Simply put, its discount has gotten a lot bigger thanks to the recent market volatility:

Cheap Fund Gets Cheaper

So if you were to buy now and wait for the fund to trade at par, you’d be looking at a 20% return. Or if you’re more impatient, just wait for this CEF to go back to where it was less than a year ago. You’ll still get a nice 5.6% return. And while you wait, you can enjoy EGIF’s 5.6% dividend stream.

A second fund to consider is the GDL Fund (GDL), run by famed value investor Mario Gabelli. Mario is a seasoned Wall Street billionaire not unlike Warren Buffet; using time-tested value-investing principles, his team looks for discounted stocks around the world and bets big on them.

But despite all that expertise, GDL trades at a ridiculous 18.6% discount to NAV!

GDL’s Absurd Markdown

The bottom line?

With $81.40 you’ll get $100 worth of stocks in high-quality global companies like Time Warner (TWX), which is likely to pop soon when it merges with AT&T, as well as Parmalat (PLT), the Italian dairy producer, which has a large share of the EU market, and Advanced Accelerator Applications (AAAP), which drug-making giant Novartis (NVS) is seeking to acquire.

Obviously, Gabelli’s team knows their stuff.

Buying now would get you this value portfolio at a huge discount. Wait for its discount to revert to where it was a few months ago, and you’ve got 8.1% upside. Keep holding on and collecting the 4.2% dividend stream and you’ll likely rack up even more gains, thanks to GDL’s strong and under-appreciated portfolio.

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