Most people don’t realize this, but there’s a simple, two-step way to grab serious gains in high-yield closed-end funds (CEFs).
Most people don’t realize this, but there’s a simple, two-step way to grab serious gains in high-yield closed-end funds (CEFs). I call it the Index Boomerang Effect. And when I say it’s simple, I’m not kidding around. It goes like this: over time, we can expect a CEF in a particular asset class to perform around as well as the index that represents it (though to be honest, the best CEFs tend to beat their indexes handily, which makes our strategy even more powerful). But even the best CEFs do lag their indexes from time to time. The key is to spot those times and buy—then ride your CEF to strong gains as the index “pulls” its share price higher. That’s step 1. Step 2 comes in when you boost your CEF’s index-generated gains with a nice discount to net asset value (NAV, or the value of a CEF’s underlying portfolio). That’s an easy metric to spot on any CEF screener. That’s it. Literally two steps to scoring big gains to go along with CEFs’ dividend payouts, whose yields regularly run above 7%. Our Index Boomerang Effect in Action Let’s put our strategy in play with a corporate-bond CEF called the Invesco Bond Fund (VBF), which closely resembles the CEF Insider Taxable Bond Index.
