Last month we purchased Fidelity Limited Term Bond (FJRLX) in our model portfolio. Part of our strat...
Closed-End Duo forTax-Efficient Yields
03/07/2017 7:00 am EST
Income investors with large taxable accounts are consistently focused on maximizing their total return and minimizing the impact of taxes on their nest egg, explains David Fabian, fund expert, money manager and editor of The Flexible Growth and Income Report.
Those who may be searching for a more active strategy or one that offers a higher yield may be interested in tax-advantaged closed-end funds (CEFs).
These more aggressive funds offer the ability to own a diversified basket of stocks with the ability to employ leverage and more creative portfolio construction methods. These two CEFs seek to provide both growth and income with a tax-efficient objective.
Eaton Vance Tax-Advantaged Global Dividend Income (ETG)
ETG is designed to offer true global exposure, with approximately 120 underlying holdings and only 50% of the portfolio dedicated to U.S. stocks. The remaining allocations are split among foreign stocks, corporate bonds, and preferred stocks.
The fund has $1.6 billion in market float and sports a current yield of 8.17%. Dividends are paid monthly to shareholders, which is an attractive feature for income-seeking investors.
The fund is currently trading at an 8% discount to its net asset value, which is close to its 3-year average. It is also employing an effective leverage of 25% per the last company disclosure.
The goal is a high level of total return (income and capital appreciation) on an after-tax basis. The combination of tax-efficiency and the access to a world stock allocation are attractive features within a diversified income portfolio.
Gabelli Dividend and Income Trust (GDV)
GDV is managed by the famed Mario Gabelli. The objective of the fund is to seek out stocks with high yields and long-term capital appreciation potential.
It’s also known to have relatively low portfolio turnover, which helps mitigate the impact of short-term capital gains taxes. As of the last reported disclosure, GDV had more than 400 holdings in its diverse portfolio.
This closed-end fund has $2.3 billion under management and currently pays an attractive yield of 6.42%. GDV is employing a leverage ratio of 20%, which is moderate by many equity CEF standards.
The fund is also trading at a 9% discount to its net asset value, which is slightly tighter than the 10.85% average over the last three years.
The quality approach to security selection, coupled with a strong management team and modest leverage, make this fund a solid contender among its peer group.
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