Globe-Trot with This Discounted Fund

03/19/2013 9:00 am EST


Richard Lehmann

Publisher, Forbes/Lehmann Income Securities Investor

Income investors should put their cash to work in this fund because of its high dividend yield and its discount to net asset value, recommends Richard Lehmann of Forbes/ISA Closed End Fund & ETF Report.

The closed-end funds in our High Variance Portfolio are chosen by comparing the funds’ current discount to their average 52-week discount, and then choosing those that have the biggest difference from their 52-week average. The higher the absolute number of the variance, the further the fund trades from its average discount.

In uncertain times, changes in government policies have more to do with market performance than prospects for company earnings. One of the ways to deal with this uncertainty is by securing some income from your investments and diversifying your holdings across many different investment vehicles, industries, and geographies.

Of course, it doesn’t hurt to accomplish this with a fund that is trading at a discount. The discount gives investors a bit of extra yield and a cushion against down markets.

The Delaware Enhanced Global Dividend & Income Fund CEF (DEX) is a closed-end fund that invests globally in dividend-paying or income-generating securities across multiple asset classes. It invests in equity, real estate, debt, and emerging-market securities, and uses options strategies.

The fund currently trades at $11.83 with a net asset value of $12.65, giving it a discount of -6.48%. Its 52-week average discount is only -1.38%. It therefore has a variance of 5.10, making this a good candidate for our High Variance Portfolio.

The fund is leveraged at 29.93% of assets, and pays a monthly distribution that equals a yield of 7.61%.

Its largest holding is Bontan (BNTNF), a Brazilian bond, at 2.54% of assets and INDOGB, a private Indonesian bond at 2% of holdings. Other holdings include Toyota (TM), 1.35% of assets; Teva Pharmaceutical (TEVA), 1.28%; and Aryzta (ARZTF), 1.28%. Its top ten holdings account for 14.22% of the fund.

Stocks make up 41.5% of the fund’s investments, followed by bonds at 31.04% and convertible bonds at 10.64%. The fund has an expense ratio of 1.56%.

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