Some experts have been recommending a couple of closed-end funds recently because of their high-yield dividend. See also recommendations from two speakers at Money Show Orlando 2010 here and here.
For those who are new to closed-end funds, here is the description from Investopedia.com.
A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
Closed-end funds are usually designed to offer more income to investors, either by using leverage or covered call. Yes, you see the word leverage there; so it means more risks.
There are a couple of closed-funds company out there, such as BlackRock (also the issuer of the very popular iShares ETFs), Eaton Vance, Nuveen, ING, Alpine and many more.
Personally, we allocate a very small amount of money in closed-end funds. Why?
- The management fee of closed-end funds tends to be higher than ETFs. Worse, the fee information is sometimes not easy to find.
- Many closed-end funds are traded at very large premium or discount (more than 10% is quite normal). It is going to be tricky when we are about to buy or sell.
- Some closed-end funds are using too much leverage, which can be very risky.
If you want to invest in closed-end funds, do your own research or talk to your financial advisor. There are some good closed-end funds that may provide additional income in this kind of market. CEFConnect.com has a very good closed-end funds screener.
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