We mentioned in our previous posting that we allocate a small amount of our portfolio into closed-end funds. We also recommend you to do research before buying closed-end funds because they tend to be more expensive than ETFs. Besides, some closed-end funds use leverage which will add risk.

We would like to compare a couple of closed-end funds that track S&P 500, i.e.:

• BlackRock Enhanced Capital and Income Fund (NYSE:CII)
• Eaton Vance Tax-Managed Buy-Write Income (NYSE:ETB)
• Nuveen Core Equity Alpha Fund (NYSE:JCE)

All those three funds are basically buying stocks in S&P 500. They tried to outperform S&P 500 by writing options (covered call). That’s why; if you look at their fact sheets, they pay very high dividend. BlackRock’s Enhanced Capital and Income Fund, for example, pays 12.64% dividend. Yes, it’s double-digit dividend.

Now, let’s compare the performance of those funds to SPY, which is the biggest ETF that replicates S&P 500. As you can see, none of those funds can beat SPY in the long run. From year 2007 until today, here are the return of those funds:

• CII: –25.05%
• ETB: –22.37%
• JCE: –39.67%
• SPY: –21.44%

Of course, if you choose the right funds, the overall return including dividend might be higher than SPY.

• Previous Entry: Buying Closed-end Funds?
• Next Entry: Week in Review