An Equity Fund for "Enhanced" Income

12/21/2020 5:00 am EST

Focus: ETFS

Martin Fridson, CFA

Publisher, Income Securities Investor

First Trust Enhanced Equity Income Fund (FFA) has an investment objective to deliver a high level of current income and gains, in addition to capital appreciation, observes Marty Fridson, income expert and editor of the Forbes/Fridson Income Securities Investor.

The fund is non-leveraged and four-star rated by Morningstar. FFA invests substantially all of its managed assets in a diversified portfolio of U.S. common stocks, as well as U.S. dollar-denominated equity securities of non-U.S. issuers that trade on U.S. exchanges.

First Trust Enhanced Equity Income Fund also writes or sells covered call options against a portion of its managed assets for added income.

The fund’s portfolio mix is appropriate, given economic times. As of 10/31/20, the fund’s portfolio breakdown for its five largest sectors consisted of Information Technology (30.9%), Health Care (14.6%), Communication Services (11.0%), Consumer Discretionary (10.9%), and Financials (10.1%).

The top five holdings at the end of the same period were Microsoft (MSFT), at 8.2%; Apple (AAPL), at 7.0%; Thermo Fisher Scientific (TMO), at 3.1%; and JPMorgan (JPM) at 3.1%.

Total return performance has been historically solid, although returns in 2020 have been hurt by the COVID-19 pandemic’s impact on markets.

First Trust Enhanced Equity Income Fund reported a year-to-date market price total return of +1.99% through 11/27/20. We believe this closed-end fund is suitable for low- to medium-risk portfolios over the intermediate term.

Distributions are taxed on a variable basis, but largely at the lower tax rate, reflecting the large component of qualified dividends and long-term capital gains. Buy up to $19.00.

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