Neglecting Wise Investment Strategies Might Result in Loss of Over 8% Dividends

Neglecting Wise Investment Strategies Might Result in Loss of Over 8% Dividends

Hey there, folks! I've got some juicy insights to share about those delicious income-generating machines - closed-end funds (CEFs) – that are providing dividends of up to 8%+ in these rocky times we're living in.

It's obvious that there's plenty of misunderstanding about CEFs floating around, keeping investors away from the big, monthly payouts they provide. In this article, we'll clear up some common misconceptions and show you why ignoring CEFs could be a costly mistake.

So, what are the top two concerns that are discouraging folks from investing in these little dividend champions?

1. High management fees – yup, CEFs do have fees that appear ludicrous when compared to passive funds. On average, CEFs boast management fees of 2.9%. But hold on – let's consider the gem that is the Virtus Artificial Intelligence & Technology Opportunities Fund (AIO) and the Columbia Seligman Premium Technology Growth Fund (STK), which both charge less than the average: about 2.7% for AIO and 1.1% for STK. The BlackRock Science and Technology Trust (BST) also fits the bill, with fees similar to STK at 1.09%. We'll concentrate more on AIO and STK for today's discussion.
2. Buying cheaper alternatives to the CEF holdings – fair enough! The other criticism has a grain of truth, though not necessarily in the way the reader intended.

A flaw in this argument revolves around the notion that CEFs can be replaced by purchasing stocks directly. However, it's crucial to remember that as a closed-end fund, the number of shares issued remains fixed. Prices of these shares can fluctuate based on supply and demand, often resulting in the fund's market price diverging from its net asset value (NAV).

Here's an exciting opportunity: you can purchase an undervalued CEF like the Liberty All-Star Growth Fund (ASG), which yields a hefty 9.4% and boasts a 7.9% discount to NAV! Not only does ASG offer a robust dividend, but Microsoft is its top position (4%) and NVIDIA comes in a close second (3.3%).

Want to grab an excellent bargain? Check out the chart comparing ASG (discounted) with AIO (premium) throughout 2020. When ASG was trading at a premium, AIO was discounted, and vice versa! Whether you want to capitalize on this pattern or not, we're always hunting for opportunities like these at our CEF Insider service.

So don't miss out on these opportunities and get ready for those high dividends!

*Remember, we're all about bringing valuable investment advice to the table. Stay tuned for more great income ideas in our latest report, "Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends."

*Disclosure: none.

1. Misconceptions about high management fees in closed-end funds (CEFs) can deter investors, but it's essential to examine funds like the Virtus Artificial Intelligence & Technology Opportunities Fund (AIO) and the Columbia Seligman Premium Technology Growth Fund (STK), which both charge lower-than-average fees.
2. It's true that buying the individual stocks that CEFs hold can seem like an appealing alternative, but it's important to note that as a closed-end fund, the number of shares issued remains fixed, making prices susceptible to fluctuations based on supply and demand, often leading to the fund's market price diverging from its net asset value (NAV).
3. Taking advantage of the opportunities presented by undervalued CEFs, such as the Liberty All-Star Growth Fund (ASG), which offers a 9.4% yield and currently trades at a 7.9% discount to NAV, can provide substantial returns for income-oriented investors.

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