6 Equity Closed-End Funds With High Dividend Yield Enhancement

Closed-end funds offer several ways to capture “alpha” or excess return over a benchmark. Unlike open-end mutual funds, closed-end funds issue a fixed number of shares that trade in the secondary market and often trade at a discount or a premium to their net asset value. There are two main ways to capture “alpha” from closed-end funds: 1) Discount Capture: This occurs when you buy a closed-end fund at a discount which then narrows. (You can also capture alpha when you buy a closed-end fund at a premium which then widens further but this can be risky if the premium goes away). Here is an example of discount capture. You buy a closed-end fund at a discount of 20%. The net asset value is $100, and you buy the fund for $80. Suppose the overall market goes up 10%, the net asset value also goes up 10%, and the discount... Read more