3 Closed-End Funds with Solid Income

10/26/2012 8:00 am EST

Focus: FUNDS

Marilyn Cohen

President & CEO, Envision Capital Management, Inc.

This unique closed-end fund niche can kick off some solid income, but you have to pick your entrance to reap the best rewards, writes Marilyn Cohen of Bond Smart Investor.

The October 8 issue of Barron’s had an informative article written by Jacqueline Doherty. Her topic was all bout the many closed-end funds selling at huge premiums to their net asset value.

With that as a prelude, we are monitoring a sub-class called floating rate, senior loan closed-end funds. The reason is pretty obvious: High-yield bond prices are al­most all trading at premiums—some at huge premiums over par value. And as your bonds roll down the yield curve, bonds gravitate to­ward par value the closer they get to maturity.

There are a lot of bond gurus calling a top in high-yield bonds. Only time will tell if they are right. If we can snatch a few closed-end adjustable rate loan funds yielding a distribu­tion rate of 5.5% to 7% for 10% to 12% of your portfolio, that will add real value.

However, the purchases should be made at a discount to the net asset value, or as close to net asset value as possible. Here are a few leveraged floating rate closed-end funds we are monitoring:

  • Pioneer Floating Rate Trust (PHD)
  • Black Rock Floating Rate Inc. Trust (BGT)
  • Nuveen Floating Rate Income Trust (JFR)

Here’s why we aren’t jumping in right now: The most well run, best of breed floating rate funds' market price vs. net asset value are trading at sizable premiums at this point. But this changes fairly rapidly, so please exercise your patience and get in at par or a discount.

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