12 High-Yield Managed Distribution Policy Funds

Exchange traded funds (ETFs) and closed-end funds (CEFs) are composed of many different individual securities. This usually results in uneven dividend distributions. Some funds have tried to address this with a managed distribution policy. In short, a managed distribution policy is management's commitment to make a fixed periodic dividend payment.How Managed Distribution Policies WorkSince many funds distribute most of their income to shareholders in order to avoid taxation, funds with a managed distribution policy sometimes have cash left over at year-end that needs to be distributed. This is is normally done as a "special" one-time dividend. However, if the fund generates insufficient cash to cover the dividend, the fund is forced to sell some investments to cover the cash short-fall. In turn, this portion of the short-fall is treated as a return of capital and the fund now has lower assets to generate future income.Advantages of... Read more