Closed-end funds are on sale. A fire sale.
Thanks to the panic, you can buy $1 worth of assets for 85 cents, or less.
What's not to like?
For the uninitiated, closed-end funds are very similar to mutual funds, except that they issue only a fixed number of units. To invest in the fund, you buy the shares on an exchange as you would regular stocks.
They can be an absolute steal for the canny investor who is willing to go against the crowd, because at times people who need to get out of a fund in a hurry will just sell these shares for a lot less than they are worth.
Their loss, your gain.
Mariana Bush, a closed-end fund analyst at Wachovia Securities, believes this is happening right now. She calls it an "historic" moment and says many funds have fallen to "extreme" discounts to their underlying net asset value.
No kidding. There's a conservative municipal bond fund selling for 8.8% off.
Bush has given clients a list of her favorite funds that are selling for big discounts right now. They cover the waterfront, from funds that invest in stocks to those that invest in emerging-market debt, municipal bonds and foreign currencies.
The kicker? Most of these closed-end funds offer great dividend yields, and when you buy them at a discount you simply get more dividends for your money each month.
Here are 11 of the funds that Bush recommends.
Their Loss, Your Gain
These 11 closed-end funds trade at big discounts to NAV as of Aug. 17 |
| Fund Name & Ticker |
Price $ |
Discount % |
Yield % |
| W. Asset Interm. Muni (SBI) |
8.7 |
8.8 |
4.8 |
| Hancock Patriot Prem. Divi II (PDT) |
10.22 |
16.7 |
5.6 |
| Lazard World Divi & Inc. (LOR) |
18.99 |
14.2 |
7.4 |
| BlackRock Real Asset Equities (BCF) |
14.3 |
13.5 |
7.6 |
| DWS Global High Inc. (LBF) |
8.02 |
14 |
7.5 |
| Currency & Inc. (GCF) |
17.62 |
9.5 |
8.2 |
| Calamos Strategic Total Return (CSQ) |
13.75 |
11.1 |
8.5 |
| BlackRock Preferred & Equity (BTZ) |
18.73 |
11.5 |
10 |
| BlackRock Enhanced Capital & Inc. (CII) |
19.95 |
11.8 |
9.7 |
| BlackRock World Investment (BWC) |
14.82 |
9.4 |
9.2 |
| Eaton Vance Tax Mgd Div. Eq. Inc. (ETY) |
18.19 |
4.5 |
10.1 |
| Source: Nuveen Investments. Note: Yields are forecast only |
Western Asset Intermediate Muni Fund (SBI) is a conservative municipal bond fund. It isn't even taking much risk on long-term interest rates, because its weighted-average maturity is about five years. At $8.70 a share it is trading at a remarkable 8.8% discount to its underlying NAV. This means the fund is now yielding 4.8%. And of course it invests in municipals, so the income is exempt from federal income tax.
The John Hancock Patriot Premium Dividend Fund II (PDT) invests in shares paying high dividends, including both common stocks and the "preferred" stocks that somewhat resemble bonds. It says it normally invests 65% in the dull, if dependable, utility industry. Talk about a strategy your Aunt Sally would love. It has traded at a discount of 10% or more for a couple of years, but that had widened to 16.7% as of Friday's close. That means a dividend yield of 5.6%.
The Lazard World Dividend & Income Fund (LOR) invests in global equities that pay high dividends, combined with some international and emerging-market debt. Big holdings right now include Italian oil company Eni (E - Cramer's Take - Stockpickr - Rating), Bank of America (BAC - Cramer's Take - Stockpickr - Rating) and Dow Chemical (DOW - Cramer's Take - Stockpickr - Rating). At Friday's close of $18.99, the shares traded at a 14.2% discount with a yield of 7.4%.
If you're going to invest in the commodities boom, then the BlackRock Real Asset Equities (BCF) fund would seem a reasonable way to do it. The fund invests in energy, mining and related businesses, from Rio Tinto (RTP - Cramer's Take - Stockpickr) to Impala Platinum to Caterpillar (CAT - Cramer's Take - Stockpickr - Rating). And right now you get $1 worth of those shares for every 86.5 cents you invest in this fund, because at $14.30 a share BCF is trading at a 13.5% discount to net assets. Current yield is a jumbo 7.6%.
DWS Global High Income Fund (LBF), by contrast, is a way of buying a portfolio of emerging-market government bonds at 14% off. Its biggest exposures are to Brazil, Turkey, the Philippines and Indonesia. Current yield: 7.5%.
The Global Income & Currency Fund (GCF), managed by IQ Investment Advisors, holds everything from paper issued by Freddie Mac (FRE - Cramer's Take - Stockpickr - Rating) here in the U.S. to Turkish, Hungarian and New Zealand government bonds. Managers IQ Investment Advisors focuses on developed countries and tries to provide long and short exposure to selected currencies. Bottom line? At $17.62, the shares have plunged to a 9.5% discount, offering a 8.2% yield.
The Calamos Strategic Total Return Fund (CSQ) is pretty much a go-anywhere vehicle. The managers can invest in stocks, bonds, preferreds and convertibles, both here in the U.S., in developed foreign markets such as Japan and Europe, and in emerging markets.
The guidelines suggest that 50% of the fund will be in stocks, 65% in the U.S., and no more than 15% in emerging markets. Biggest holdings at last count were AT&T (T - Cramer's Take - Stockpickr - Rating), Johnson & Johnson (JNJ - Cramer's Take - Stockpickr - Rating) and Ford's (F-PS - Cramer's Take - Stockpickr) Capital Trust II tradeable preferreds. In other words, it looks a lot like a well-managed private portfolio. The difference? You get to buy into it at a 11.1% discount to the underlying assets. At $13.75, the shares yield a stunning 8.5%, paid monthly.
BlackRock Preferred and Equity Trust (BTZ) invests largely in preferred and common stocks of U.S. companies. It focuses on big-name, blue-chip companies. At $18.73 a share its shares have fallen to a 11.5% discount to their underlying net assets, and they now yield 10.0%.
BlackRock Enhanced Capital and Income fund (CII) has a much broader mandate: It can invest in foreign and U.S. stocks and bonds, and the team are given pretty broad latitude to go where they find the best value. Top holdings recently were Exxon (XOM - Cramer's Take - Stockpickr - Rating), JPMorgan Chase (JPM - Cramer's Take - Stockpickr - Rating), IBM (IMB - Cramer's Take - Stockpickr - Rating) and some Freddie Mac paper. At $19.95, the shares now sell for an 11.8% discount and yield 9.7%.
BlackRock World Investment Trust (BWC) and Eaton Vance Tax-Managed Diversified Equity Income Fund (ETY) are so-called "buy-write" funds. They generates income by buying stocks in well-known companies and then selling (or "writing") call options on those same stocks. This strategy has been in vogue in the fund industry for the past few years, and it's less arcane than it sounds. Data show that over time it has produced similar returns to the stock market overall, with a lot less risk.
And it looks like a really good strategy to invest in right now, because the volatility of the past few weeks has sent the prices of stock options through the roof.
Anyone selling call options for a living, like these two funds, should be coining it.
And you get to double-dip if you can get a discount on the fund itself, like here. At $14.82 the BlackRock fund has slumped to a 9.4% discount to net assets, and it yields 9.2%. The Eaton Vance fund, at $18.19, sells for a 4.5% discount and yields 10.1%.
Bush doesn't mention them, but there are a host of other buy-write funds that look pretty good right now too. Among them are several others from Eaton Vance, including Tax Managed Global Buy-Write Opportunities(ETW), Tax Managed Global Diversified Equity Income Fund (EXG) and Tax Managed Buy-Write Income Fund (ETB). All have slumped to big fat discounts, and they now yield 10% or better.
I have written here before about the rip-off of the closed-end fund IPOs when these funds are sold to investors for more than their underlying net assets are worth. For these funds, those days are long gone. Those who waited for the sale, as usual, can now have their patience rewarded.
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