This Unusual “Index Boomerang Effect” Can Generate 95% Gains in CEFs

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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.… Read more

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Three of the most successful closed-end funds (CEFs) in history have done something unprecedented—both for the funds themselves and the company that manages them. They merged.

PIMCO is arguably the most successful CEF manager around, and investors know it: they’ve bid up almost all the company’s funds to premiums to net asset value, or NAV (in other words, their market prices are higher than the per-share value of their portfolios). 

The company has always kept its funds separate, even though they have many similarities, so it came as a surprise when it announced that its PIMCO Dynamic Credit and Mortgage Fund (PCI), PIMCO Dynamic Income Fund (PDI) and PIMCO Income Opportunities Fund (PKO) would be merged into the same fund.Read more

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Fact: there are still lots of big, cheap and safe dividends out there—but they’re going fast as this market floats higher.

So today we’re going to get right to it and look at four options for your portfolio now, ranked from worst to first.

“Worst to First” Income Play No. 4: 10-Year Treasuries

The 10-year Treasury offers a “safety feature” mainstream investors love: no matter what happens, you’ll get your principal back after 10 years.

That’s actually a trap, though, because inflation gnaws at your nest egg the whole time, and your yield—1.6% today—won’t help you: it’s 40% below the rate of inflation, which jumped 2.6% year over year in March!… Read more

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One group of funds is doing something very unusual right now: they’re raising their dividends by double digits! And those huge hikes have driven the yields on some of these unsung income plays well above 7%.

Today we’re going to jump on this red-hot contrarian opportunity.

These smartly run dividend payers (and growers!) are closed-end funds (CEFs) that hold floating-rate loans. These assets are often overlooked, which is too bad, because they’re corporate bonds that do the opposite of what most bonds do. That makes them perfect buys for upside in today’s market, when “regular” corporate bonds’ prices are plunging.

Let me explain how floating-rate loans work, and how we’ll squeeze them for strong gains and growing 7%+ dividends.… Read more

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High-yield bonds have never paid less. Which is too bad, because let’s be honest—dividends are the reason we income investors wade in “junk bond” waters in the first place.

Fortunately, by being selective rather than lamestream, we can double our existing high-yield bond dividends. Nothing fancy, either. We sell the unselective ETFs and buy the ones with proven bond investors at the helm.

Before starting, let me make one huge point. It is true that almost all actively managed equity mutual funds aren’t worth the management fees investors pay. But some actively-managed bond funds most definitely are worth it.

The ETFs we would be selling are the two most popular high-yield bond ETFs.… Read more

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If you’re like most people these days, you’re desperately searching for any kind of meaningful dividend stream.

Finding one is no easy task. The S&P 500, after all, yields 1.5%, on average. Treasuries? With their 0.9% yields, they’re not even worth talking about.

With the old income go-tos off the table, plenty of folks are looking further afield. Some are boosting their holdings of high-yield bonds through exchange-traded funds like the SPDR Bloomberg Barclays High Yield Bond ETF (JNK). Others are going with more esoteric investments, like high-yielding business development companies (BDCs), which you can tap through the UBS Etracs Business Development Company ETN (BDCS).Read more

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Something shocking just happened: Treasury Secretary Steven Mnuchin cut off a $454-billion program the Federal Reserve uses to keep the bond market running.

A disaster, right?

You’d think so. After all, we’ve heard time and time again that the Fed will do whatever it takes to support the bond market through the crisis. Now a big source of cash needed to do that is gone.

The bond market’s response was even more surprising: crickets.

The junk bond–tracking SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and iShares National Muni Bond ETF (MUB) held on to post-election gains after Mnuchin’s decision was announced.… Read more

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There’s a dangerous dividend trap setting up out there. It’s easy to fall into, and if you make this mistake, you could do fatal damage to your nest egg—and income stream—in 2021.

It’s a classic error called “reaching for yield.” It happens when investors put too much weight on an investment’s current dividend yield without considering what’s behind that payout. More and more folks are making this blunder today.

I know what you’re thinking: “Michael, I can easily sidestep a mistake like that.” That’s easy to say, but it can be hard to resist when you’re confronted with, say, a 5% payout that seems safe at a time when income go-tos like Treasuries and stocks pay a meager 0.8% and 1.5%, respectively.… Read more

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They’re here again: more articles warning us of the “dangers” of municipal bonds. Don’t take the bait, because these wrongheaded articles will steer you away from some of the safest (and highest) dividends out there.

One claim you’ll read in many of these pieces is that states are losing tax revenue, which could mean they’re gong to default on their debt or go bankrupt. In reality, municipal-bond bankruptcies are really rare.

And I mean really rare: since 1970, the municipal-bond default rate has been 0.0043%, according to Moody’s Investor Services. To put that in perspective, the CDC says your chance of getting hit by lightning is 0.0002%.… Read more

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These days, you can be forgiven for thinking a wave of bankruptcies is going to hit your portfolio (and your dividends!). But there’s no need to worry: this so-called “wave” is way overhyped—in fact, it could send your portfolio higher.

It’s just one more upside-down thing we investors have to deal with in this crisis.

And get this: you could line yourself up for triple-digit returns (and 8%+ dividends!) if you tap into investors’ (overwrought) bankruptcy fears through a corporate-bond-focused closed-end fund (CEF). I’ll have a ticker (paying a monthly dividend yielding 9.2%) in a moment.

First, let’s dispel one myth: that COVID-19 is behind all the bankruptcies we’re hearing about these days.… Read more

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