Far too many investors think inflation is bad news for closed-end funds (CEFs), for a simple reason: they fear it’ll boost CEFs’ borrowing costs. (Because CEFs, of course, use leverage to varying degrees.)
That sounds like a reason to worry. Inflation, after all, boosts interest rates, and higher rates obviously mean CEFs would have to pay more to service their loans.
Bad news, right?
Not so fast! Because nearly everyone forgets the other side to the story—that inflation (at least these days) comes with a strong economy—and that drives investment returns that’ll more than offset any small rise in CEFs’ borrowing costs.… Read more