Closed-end Fund Income Investing

I invest in dividend stocks normally but
have been trying to learn options and I
have benefited greatly from Optioncoach's
posts and simple spread explanations.

I have been studying CEFs for quite a
few years and have some suggestions.
First, the floating rate CEFs have never
performed well even back during periods
of rapid fed funds increases because the
NAVs and dividends are somehow tied
to the shape of the yield curve.

I think any bond CEF is risky now because
the junk to investment grade difference is
so small that new bonds are always at
a lower rate that the ones being paid off.

There is a very good tax advantaged fund
that is at a NAV discount called BTO. It invests in banks and has a very good
manager and has a managed 10%
quarterly dividend policy. The dividend
are almost all carried over long term
capital gains so result is better than muni
funds.

Also, there is a very good Yahoo board
for the stock delisted stock renn. I think
you need to go to the Yahoo stock groups
and do a search for tug8boat for get to
the group. The board has very good
skeptical analyses of problems with bond
CEFs. There are even who have systems
for scalping monthly dividend gamma.
 
Here is another fund I have owned for about 2 years and going to add more to my position today:

CIK - Credit Suisse Asset Management Income

Pricing Info As Of: 01/30/2006
Closing NAV: $4.26
Closing Share Price: $3.96
Premium/(Discount): -7.04%
Current Market Yield: 9.09%

The dividend was cut back in August of last year but has held solid since. I held this one from a discount to a premium and it dove back to a discount when the dividend was cut but to its credit the NAV has held up failry well. There was some volatility in the NAV and share pricing but if this fund is part of a good diversified CEF portfolio, the nice 9% yield can be mined with minimal risk.

It invests mainly in low grade fixed income securities but its largest holding is only 1.2% of assets and the average credit quality is B, so risk is spread out as best as can be in such a low-grade portfolio.

Average duration is about 4.34 so the fund appears to have taken measures to hedge itself in a raising rate environment.

The fund took a hit in 2005 of about 9% in its share price while the NAV was UP 2%. SO you have to deal with price volatility which is understandable on an issue currently priced below $5.00. However I like its duration, average coupon yield of just under 9% and diversity. As long as I can keep my holdings diversified to offset the volatile price swings, I will be happy to pocket 9% in income.
 
Hey sorry for the long quiet period! I was doing a portfolio review of my CEFs and will be cutting some losers and adding some new blood so I will have some more research posts.

But I wanted to also illustrate a point I have been making about my approach to CEFs. As I have said, my main goal is to park my cash in a large diversified pool of CEF's to diversify away the share price risk as best as I can and just capture the yield which is averaging just over 7%. The CEFs are used to park the cash I trade my credit spreads with as well as adding monthly income to my overall portfolio along with other option trades.

As of today I had about 39 different CEFs with an average yield over 7% and a net share profit/(loss) of .18%. The main reason the price return is so low is my own fault. I have been quite busy with options that I neglected my CEF portfolio for some time and let some losers run too long as opposed to using my stop-loss cut off. This has dragged it down a bit. But the diversification kept it positive. Positive share price appreciation is a nice bonus but since I want to capture the yield, a flat share price return is acceptable- it means I have diversified that risk away very well. This may be comforting to those who want to create a diversified pool of CEFs and not worry about each share price fluctuation.

So I will cut about 2 losers this week (FFA and WIA) and add some more funds next week. The goal is the get that share price return back in to positive territory (not just by cutting losers, I am tracking the portfolio value today and will compare to the new value after adding some more CEFs and letting em ride.)
 
How about VVR (Van Kampen Senior Income Trust) ?

It has 7% yeild and can go up with FED rates.
It's not diversified though.
 
Thanks will take a look into it. Even it if not diversified, you can reduce the effects that one fund has on your portfolio with a good stop-loss and by diversifying your fund throughout the portfolio. For example if you wanted some diversification into TIPS, you could buy a TIPS fund. It is not diversified itself since it is only in TIPS but you are adding diversification to your portoflio overall by getting some exposure to TIPS- this is just an example.

I will be running my research later today and let you know on VVR
 
Actually I own VVR (knew it sounded familiar lol). Picked it up in Jan 2005. Down 4% since I bought it but been harvesting that yield while offsetting the share price moves. As the chart shows it did decline in price and increased its discount over 2005 but the NAV has been pretty steady. Its price has come off the large discount from last November and the discount has narrowed. I still like VVR and will hold on to it and perhaps add some more.

One thing I like is that the dividend has increased from $0.396 a share in April 2005 to $.0507 for Feb 2006. No more than 12% in any one sector and no more than 2-3% in any one security. Rising interest rates will help the portfolio but also squeeze a little their use of leverage. Overall, though, it should still result in a net positive return for the year, perhaps move back to a premium.

nvulch.jpg
 
I have been watching the senior loan funds with some interest due to my expectations of a few more rate hikes under Bernake. Currently I own EVF, which is yielding for me (where I bought it, anyway) about 7.15%. Dividends have been raised recently and NAV looks to be rising, but the fund (like many senior loan funds) has fairly high expenses (3%!!!)

If you are willing to accept the lower yield, take a look at EVT which is higher credit rated securities with a lower yield (6.4%) but is still trading at a good discount of 9-10%, unlike many other higher yielding senior CEF's where the discounts have eroded from November-December. NAV is rising on this fund, and expenses are 1% or so.

What I probably like better in this category is EVV which seems to have a flat NAV and is yielding about 8.3%. The discount is not so great - only about 4% now, but the yield sure is decent, and the underlying securities are good credit rated with 1% expenses. I'd like to pick some of this up if it drops in price (fat chance). In retrospect, you could have picked it up at a 11% discount for a 9.4% yield back in December. The only thing with it is that it has CMO's which might get you a bit worried, but that can probably be managed.

Most of these funds trade with 33% or so leverage, pretty standard for the group. Discounts on the funds averaged about 10% last year, but that was because too many of them came out at the same time and diluted their effects.

If you want to do the same thing outside of a CEF, because of the leverage thing, you can always do FFRHX which is yielding about 5.5%.
 
Coach:

Could you share the results of your CEF review?

I have just started adding CEF's into my mix and wondered if you had a top 10 based on your current studies.

I'm not sure that I'll get out to the 39 different funds that you hold but I do know that they need to be diversified for best results.

Thanks!
 
So I'll just note for the group that BGR's nav has been recently rising, while its discount has been dropping.

NAV as of 4/11/06 :30.74
Share price today: 26.84
Discount of about 13%, which is close to its max discount ever.

Undoubtedly held back by Natural gas, and I'm guessing someone sitting on the bid at 27.00 (since high is 26.95, making it convenient to manipulate, as you know). Volume is light too.

Taking a look at the annual report, if I am reading it correctly, there does look to have been a decent amount of UNII even back as of 10/31/05. That was at a NAV of $28. Nav now almost $31, as you see above. No long term cap gains paid as the fund had not been in existance a year as of 12/31/05.

Not sure about why the discount is so large for an energy providor, but so be it.

Just posting for information's sake.
 
Sorry for the long absence from this thread, it has gotten so hectic lately.

As for 39 funds, this is over the past few years I have been buying CEFs and cutting losers and replacing them with other funds. You do not need a lot of funds if you can diversify across different sectors, but I just keep puting cash into CEFs as I find candidates.

I have some idle cash freed up now which I need to put into some CEFs so I will be adding to this thread shortly.




Quote from No Option:

Coach:

Could you share the results of your CEF review?

I have just started adding CEF's into my mix and wondered if you had a top 10 based on your current studies.

I'm not sure that I'll get out to the 39 different funds that you hold but I do know that they need to be diversified for best results.

Thanks!
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