From Contrarian Outlook: We’ve seen a lot of volatility and fear in 2018, and that’s handed us a great buying opportunity–particularly in the 5 unloved funds I’ll show you below.
Make no mistake: each of these 5 despised funds is poised for serious upside before 2018 is out … and they’ll pay us 8.2% average dividends, to boot. That’s enough to hand you $3,400 a month on a $500k nest egg! Before we get to them, let’s take a look back at the year so far and see what’s handed us this terrific opportunity.
History Is Set to Repeat
Hated CEFs Turn the Corner
Why did these 3 funds–the Reaves Utility Income Fund (UTG), the Cohen & Steers Infrastructure Fund (UTF)and the DNP Select Income Fund (DNP)–all of which I recommended back on March 1–soar? Because they got way too oversold, and investors realized their mistake and started to buy in again.
There are 2 ways to identify an oversold fund: first, check if its total NAV return (or the performance of its underlying portfolio) is exceeding its total return as measured by its market price. Second, note whether the fund’s total NAV return is exceeding those of its peers and its benchmark index.
In the case of the 3 funds above, the response to both questions was a resounding “yes” in February, giving us our clue to buy. And a quick look at how CEFs have performed in 2018 makes it clear that we’ve arrived at yet another great time to jump in, with the 10 funds I’ll show you in just a second leading the way.
The Year (so far) in CEFs
With the S&P 500 up 8% year to date, it’s obvious that both the economy, which is set to grow 3% this year, and the stock market, which is seeing a strong uptrend thanks to record-breaking earnings and strong revenue growth, are doing fine. That should bolster all US-based assets–yet that’s not what we’re seeing in CEFs:
Closed-End Funds Lagging–For Now
With only equity and taxable bonds in positive territory for 2018, investors are right to be scratching their heads in confusion. Why aren’t CEFs tracking the market?
In part it’s because CEFs crushed it in 2017. Equity CEFs were up 20.2% last year, even though they were dragged down by the many energy funds that underperformed due to another disappointing year for oil. And so far in 2018, the market has had less of an appetite for CEFs, despite their still-strong NAV performance.
In fact, there are a lot of equity CEFs that are beating the S&P 500 on a NAV basis in 2018, but their market prices simply haven’t caught up. This has handed us our rare opportunity to get some great dividends at a special price.
5 CEFs to Buy Now
So what are the low-priced CEFs that should be on your list now? Here they are–with an average year-to-date total NAV return of 13%, about 50% better than the S&P 500:
Note the diversity of options here. There are energy funds, covered-call stock funds, healthcare funds and private-equity funds.
It’s not too surprising to see energy and healthcare make a strong showing: after years, energy is starting to show some strong long-term fundamental strength thanks to a booming global economy driving demand for oil and gas. Healthcare, for its part, has started to recover from an early-year panic that had nothing to do with fundamentals.
Both trends have made risk-averse CEF investors slow to jump in, despite the strong fundamental performance, which means you can buy in now for a strong total return in the next few months as the market rediscovers these gems.
And remember that a big part of that strong total return comes your way in cash, thanks to these funds’ outsized 8.2% average dividends, enough to hand you that nice $3,400 a month on a $500k investment.
How does that stack up to the S&P 500? Put that same $500k there and you’ll get a measly $716 per month. For income investors, CEFs are the obvious choice.
My 2 Top CEF Buys: 9.3%+ Dividends and 20% Upside
It may seem odd to you that I’m casually throwing that 8.2% figure out there. Because it’s been drilled into our heads that any payout that high is a recipe for disaster.
But when it comes to CEFs, this so-called “wisdom” goes out the window!
Just at the steady cash stream one of my top CEFs buys right now (whose name and ticker symbol you can get right here) has thrown off in the last 8 years:
A Growing 10% Payout
What you’re looking at here is a fund that pays a 10% regular dividend, and that doesn’t include its many special payouts, which, as you can see above, regularly drop on lucky shareholders!
Then there’s the second fund I’m banging the table on right now, which must, by its own rules, pay us at least a 6% dividend every year. And it does so in one single payment at the end of every year.
But that’s just the start, because this unsung cash machine usually pays much more–in 2016, it paid 8.2%, and it dropped a 9.3% payout on shareholders in 2017!
Massive Payouts Completely Missed by the Herd
I love this fund (whose name and ticker I’ll show you here) because its NAV is riding higher, meaning management simply must pay out more cash to shareholders. But because this one only pays once a year and the herd thinks the payout will only be 6%, it’s completely overlooked, trading at a stupidly cheap 15% discount to NAV.
This one is a screaming buy–“hard-wired” for at least 20% price upside in the next 12 months–and you’ll want to make your move now, before it drops its next huge yearly payout.
All the details on these 2 powerhouse CEFs (along with my 3 other top buys in this cash-rich corner of the market) are waiting for you now. CLICK HERE and I’ll give you everything I have on these incredible income (and growth) plays–names, ticker symbols, buy-under prices, the works!
This article is brought to you courtesy of Contrarian Outlook.
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