By now you may have heard about the huge dividends and soaring price gains offered by closed-end funds (CEFs).
But here’s something that will probably surprise you: you can lock in even bigger—and safer—income streams (I’m talking 7%+ dividends), plus massive upside with smaller CEFs.
I know that sounds counterintuitive, and quite the opposite of what happens with stocks; small-cap companies rarely pay dividends and can collapse overnight.
The key is to go with small CEFs sporting portfolios backstopped by large cap stocks and whip-smart management teams, like the 3 funds (paying up to 10.1% in cash each) I’ll show you in a moment.
So what’s the point in buying small CEFs if they hold large cap stocks?
Because these funds are too small for big hedge funds and investment banks to buy into, leaving them open for you and me to scoop up cheap.
And no, that doesn’t mean these funds are lacking in upside, because more folks are discovering them every day, throwing a steady lift under their share prices (just as the rising stock market drives up the value of their portfolios).
So let’s get going, starting with…
Small-CEF Pick #1: A 7.4% Payout Backed By a Stock-Picking All-Star Team
Nuveen Asset Management manages a total of $970 billion across a slew of different types of funds, which means the Nuveen Core Equity Alpha Fund (JCE) is one of its smallest. With just $242 million in assets under management, this is a tiny large-cap stock fund.
But JCE is big in the ways that matter: its 7.4% dividend is way higher than the sub-2% income the average S&P 500 stock pays, and it has beaten the index in the last three years:
Massive Dividend Pulls Investors In
Meanwhile, JCE’s holdings are well diversified among companies with strong cash flow, such as Boeing (BA), its second-largest holding.
But the beauty of this stock-picker’s fund is that it also looks for companies with healthy balance sheets and strong growth that aren’t well-known names, like its biggest holding, Intuitive Surgical (ISRG). This firm is hardly a household name, but its net income is growing by 59.1% year over year, and revenue is rising 24.7%, far above the rest of the market and many of its competitors.
Small-CEF Pick #2: Big Data Drives Big Returns (and Dividends)
Lazard Asset Management is known for finding new ways of zeroing in on top-performing stocks; its Lazard Global Total Return & Income Fund (LGI) has been doing this by combining old-fashioned value investing with cutting-edge data analysis.
Beating the Market, Again
In the last three years, LGI has beaten the S&P 500 by nearly seven percentage points, even while paying investors a 7.4% income stream. What’s crazy about this strong showing is that LGI still trades at a discount of 4% to its NAV (or net asset value, being the value of the fund’s portfolio if it shut down and sold off its assets today).
With LGI, you’re buying a strong track record, market outperformance and a big income stream—and you’re getting all of this at a discount.
Why such a silly mispricing? Because this $206-million fund is too small for big players to snap up. But that doesn’t mean it isn’t attracting more attention—LGI’s discount has been shrinking over the last year:
Our Buy Window Is Closing
That suggests some people are realizing how absurdly cheap this fund is, and they’re buying while they still can. But you can beat them to it if you snap up shares now.
Small-CEF Pick #3: A Massive 10.1% Dividend—and Low Volatility, Too
The Delaware Investments Dividend and Income Fund (DDF) is tiny, with just $102.7 million in assets. That may be because Canadian bank Macquarie Investment Management runs this fund, so a lot of Americans just overlook it.
Yet DDF is extremely attractive, for a couple reasons. First, of course, is the massive 10.1% dividend it pays out. And that dividend is sustainable thanks to DDF’s diversified portfolio: the fund combines stocks and corporate bonds and switches between the two according to what is most attractively priced at any given time. That strategy has helped DDF match the S&P 500’s performance over the last three years:
Meeting the Index
But even better, DDF’s performance has improved recently, and it has cleanly beaten the S&P 500 over the last year:
A Sudden Outperformer
Why is it winning now? Two reasons: first, management’s diversified approach means DDF will beat stocks in times of greater volatility—and we all know the market’s volatility exploded since February of this year.
Second, the market is discovering this fund—its discount went from 10% throughout most of the last three years to just 1.3% now. That markdown will likely turn into a premium soon, just as it did in 2010, when the stock and bond markets were recovering.
But if you buy DDF now, you can get its portfolio at a discount and wait to sell it when it hits a premium—and you’ll collect a nice double-digit income stream while you wait.
— Michael Foster
I just rushed out a free Special Report that gives you 4 other small CEFs my proven 5-point CEF-picking system just flagged as the very best funds to buy for the rest of 2018.
They’re all small funds throwing off an incredible 7.6% average dividend yield—enough to give you a good shot at beating the market in the next year in cash alone.
But that’s just the start.
Because the 4 snubbed picks you’ll read about in this exclusive investment bulletin are even further off mainstream investors’ radar than the Canadian DDF fund I just told you about. And it trades at a much bigger discount to NAV, too.
Suffice it to say, that locks us in for monstrous price upside in the next 12 months—I’m talking 20% as a very conservative baseline.
These 4 funds are catnip for your income portfolio, and the fact that they’re also spring-loaded for big price gains—in addition to paying that outsized 7.6% cash payout—is an incredible bonus.
Don’t miss out on this one-time opportunity. Simply CLICK HERE and I’ll share these 4 funds’ names, tickers, buy-under prices and more with you now.
Source: Contrarian Outlook