Closed-End Fund Strategy
Emphasis on current income. Principal risk and fluctuation is expected and acceptable over the intended investment time horizon (3 to 5 years). Portfolio will consist of a determined allocation among fixed income closed-end funds, preferred equity closed-end funds, and equities with a primary emphasis on income. Closed-end funds may employ leverage, which may increase volatility.
- Typically offered/traded at a premium or discount to its net asset value (NAV).
- Cash can remain fully invested at all times versus open-end mutual funds, which need to meet investor redemptions and invest new investor contributions.
- Potential for high income through use of leverage and price appreciation if purchased at discount to NAV and the discount narrows over time.
- Risk and volatility can increase with the use of leverage, and funds are traded on major stock exchanges which are subject to all market risks.
- There are approximately 20 different holdings in the strategy, predominantly in the fixed-income asset class with some holdings representing the equity assets class.
- High-yield closed-end funds can benefit individuals looking for income and capital appreciation for those who have a higher tolerance for risk in order to obtain higher yields.
- This strategy can add diversification to a balanced portfolio.
Rick Keller, CFP®