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Forbes
27-05-2025
- Business
- Forbes
This 1 Simple Trick Can Make CEF Management Fees Vanish
Wooden Blocks with the text: Fees getty Plenty of investors miss out on the huge yields (often north of 8%) that closed-end funds (CEFs) offer. There's one simple reason why: They get way too hung up on management fees. We're going to look at a few reasons why that is today—and one easy way you can make those fees disappear entirely. But first, just how high are the fees we're talking about? Well, the average fee for all CEFs tracked by my CEF Insider service is 2.95% of assets. In contrast, the largest ETF on the planet, the SPDR S&P 500 ETF Trust (SPY), has a fee of just 0.09%. So, to be sure, we are talking about a big gap here. But although CEFs' fees are much higher, there are many reasons why we shouldn't put too much weight on them when making buying decisions. Let's talk about those now. SPY holds every stock in the S&P 500—in other words, the 500 large-cap companies that represent the biggest public firms in America. And while these stocks do well in good times, they can have rough runs, like we saw in April, for example. That's why we want to make sure we're investing in assets beyond stocks, like corporate bonds. CEFs let us do that, and they give us access to smart human managers (not to mention high dividends), too. An actual person at the helm is vital in a lot of these asset classes, and in particular corporate bonds, because deep connections are key to getting access to the best new issues. We all know deep down that diversification works. But using CEFs to do it really can take things to another level, thanks in part to their high dividends. Look at the performance of the PGIM Global High Yield Fund (GHY), in purple below, since the start of 2025 to the time of this writing. GHY is a CEF Insider holding that yields an outsized 9.8%. GHY Total Returns Ycharts As you can see, GHY outran SPY (in orange) while diversifying its shareholders beyond stocks and the US, too. In addition, the bond CEF barely fell below breakeven in April, while stocks were down 15%. And bear in mind, as well, that these numbers are net of fees. Speaking of which, GHY's fees are far higher than those of SPY (1.5% of assets compared to 0.09%) All that said, some CEFs do focus on S&P 500 companies, and still have higher fees, which brings me to my second point… GHY, as mentioned, has total expenses of 1.5%, better than the CEF average but still quite high. Compare that to the Nuveen S&P 500 Dynamic Overwrite Fund (SPXX), an S&P 500–focused CEF whose fees are much less, at 0.97%. But wait, if SPXX is focused on US large caps, why are its fees around 10 times those of SPY? It's largely because SPXX also sells call options on its holdings—or rights for investors to buy them at a fixed date and price in the future. The fund gets paid for these rights (and uses those fees to help fund its 7.7% dividend). There's some cost and work attached to that strategy, hence the higher fees. But it's a small price to pay to get a dividend that's nearly six times that of SPY. Currently, all CEFs covered by CEF Insider have an average yield of 9.1%, while SPY, as mentioned, yields 1.3%. In other words, a million dollars spread across all CEFs would get you over $90,000 in annual income, or $7,572 a month, versus less than $13,000, or about $1,075 monthly, from SPY. Income Potential CEF Insider This is why many investors use CEFs to fund an early, or partial, retirement; if it takes $682,286 in savings to replace the average paycheck in America (as measured by the Bureau of Labor Statistics' median weekly earnings survey) with CEFs but a staggering $4.8 million saved with SPY, you can see why CEFs could attract more attention—and thus, CEF issuers can charge higher fees. Now, here's the kicker: CEFs have an unusual structure that means they often trade for less than their assets are actually worth. Let's say you have a CEF that has $100,000 spread across shares of NVIDIA (NVDA), Apple (AAPL) and (AMZN), among others, and the CEF has 10,000 shares in total. Each share is worth $10. Easy enough. But CEFs are, as the name says, closed. That means CEF issuers can't issue new shares to new investors, so all of the shares trade on the public market, like stocks, and their market prices fluctuate based on investor demand, sometimes diverging from the actual value of the underlying holdings. If that demand is higher than the actual market value of the CEF, it'll trade at a premium to its portfolio's net asset value, or NAV; if lower, it'll trade at a discount. On average, CEFs trade at a 6% discount, according to CEF Insider data. So if your CEF trades at a discount wider than its annual management fee, the discount can effectively offset the cost of that fee. And bear in mind that some CEFs are steeply discounted, with discounts of 10% or more. It's worth pointing out that the fees are taken out of the CEF's portfolio by managers automatically as a matter of course; investors don't have to mail off a check. Let's wrap with a quick recap, then: CEFs give you access to discounted, high-quality assets, far higher income than most ETFs, and they give you a high-income, low-cost way to diversify, too. Plus, the best CEFs outperform their benchmarks—including the S&P 500. This is why CEFs are a passive income weapon that many wealthy investors are happy to keep in their arsenal. Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.' Disclosure: none
Forbes
29-04-2025
- Business
- Forbes
The ‘Gold' Fund That Could Cost You Thousands In Missed Returns
Image of Gold Ingots on Golden Background getty At my CEF Insider service, we focus on the long term, picking up closed-end funds that give us the capital we need to grow our wealth, plus the high income (I'm talking 8%+ yields here) we need to gain—and keep!—our financial freedom. That said, there's no denying that one particular investment (that's known for neither income nor long-term wealth building!) is getting a lot of attention these days: gold. So let's talk about the yellow metal and why we've avoided it at CEF Insider, despite its recent rise. We'll also look at a closed-end fund (CEF) that looks like a good play on gold but is, in fact, far from it. (Either way, it's a fund I recommend selling now, if you hold it, or avoiding if you don't). You don't have to look too far to see why gold is more of a play for short-term traders. Gold Lags Medium Term Ycharts We only have to go back five years to see gold underperforming the S&P 500, even after the recent selloff in stocks. But let's look at the really long term here. If we go back 33 years (the longest I can go back easily with the software I'm using), you again see that a significant gold holding would be a significant drag on a portfolio. Gold Lags Long Term Ycharts If you are trying to build generational wealth, clearly gold is not the way to go. If you're looking to play short-term extreme price moves? Then gold can work, but it's often no better than a coin flip. Here's why. Gold Coin Flip Results CEF Insider Here we see a few years in the 1970s, when gold (in blue above) crushed the S&P 500 (in red). But since then, the years in which gold has beaten stocks have been rarer. In fact, since 1971, gold has topped stocks 23 times, and stocks have beaten gold 31 times. And if you're interested in the long term, this is the real takeaway: Over this period, gold gave investors a 10.8% average return per year, while stocks returned an average of 12.5%. That's not too much of a difference. But take out the 1970s and gold gave investors a 4.3% annualized return while stocks returned 13.2% annualized return. That's a massive difference and a clear sign that gold is very much not for the long term. Which brings me to that so-called 'gold' CEF I recommend selling now: the GAMCO Global Gold, Natural Resources & Income Trust (GGN). GGN is a good fund, and well managed, but its focus on gold will inevitably drag it down when gold's rally inevitably stumbles—which is why I see it as a sell now. This one is also not a 'pure' gold play: It holds 54% of its portfolio in metals and mining stocks, including notable gold names like Newmont Corp. (NEM) and Kinross Gold (KGC). But it also has miners of other minerals, like Rio Tinto (RIO)—mainly an iron ore miner—and BHP Group (BHP), which focuses mostly on iron ore and copper. Another 33% of GGN's holdings are in energy and energy-services stocks, including top-10 holdings Exxon Mobil (XOM) and Chevron (CVX). That energy focus has been weighing on GGN, since oil has been tumbling with stocks as of late. Nonetheless, investors have been bidding up the fund, shrinking the fund's discount to net asset value (NAV, or the value of its underlying holdings) down close to par. The fund's discount has been shrinking for years after temporarily spiking in mid-2022, during that year's selloff. That's left its current discount near its 10-year average of 3%. In other words, this fund is no longer undervalued, so it risks seeing less demand from investors going forward. This doesn't mean GGN is always a sell, by the way. Buying it on October 1, 2022, near the depths of that year's stock-market pullback, would have been a good move: GGN (in purple below) trounced gold prices—shown by a benchmark index fund, the SPDR Gold Shares (GLD), in orange, and an S&P 500 index fund (in blue) from then until the end of that year: GGN Outperforms Ycharts Since then, though, the story has been very different. GGN Lags Ycharts As you can see above, GGN is well behind the S&P 500 since then, and more or less on par with gold. The fund's 'tie' with gold since brings up another question, though: Why not just buy gold itself? Well, gold has no dividend, so if you want to use your profits, you'll need to know how to time gold's ups and downs in order to sell at the right times to get the cash you need. With GGN, you're at least getting an 8.4% payout. The fund's high dividend effectively turned the volatility in the fund's gold and resources holdings into usable income for investors who held it. What's more, with gold itself—or an ETF that tracks it, like GLD, you will have to be very right about gold in the short term because gold tends to underperform stocks. And since gold has had an unusually strong run as of late, the law of mean reversion suggests that the chances of a bullish bet on gold turning sour are more likely now than they were a few weeks ago. All of this basically leaves us back where we started: If you're in the market for a reliable income stream to provide long-term wealth without the stress of gambling on short-term moves in an unpredictable commodity, you're best to look elsewhere. Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.' Disclosure: none
Forbes
05-04-2025
- Business
- Forbes
These 2 Indicators Are Tricking Investors And Costing Them A Fortune
Shocked upset elderly couple getting bad news, finding fraud, money stealing, loss, overspending, ... More financial problem, holding calculator, using laptop, staring at monitor Most indicators are misleading investors right now, with some looking rosy and others seemingly saying it's time to panic. So today we're going to parse through the noise and look at what's really going on under the hood of the US economy. Then I'm going to give you our latest 'CEF Insider intel' on what to do with stocks—and funds (specifically closed-end funds) that hold them. We're also going to dig into one bond fund yielding an outsized 13% that's set to benefit as uncertainty grows. Consider the CNN Fear & Greed index, a closely watched sentiment indicator. As I write this, it's showing a five-alarm fire. Fear & Greed Index Meantime, let's look at the VIX, the market's so-called 'fear gauge.' You'd think that with the S&P 500 just closing out its worst quarter since 2022, the VIX would be spiking. Instead, crickets. VIX Quiet The VIX, which measures stock volatility, is at 22.3 as I write this—somewhat high territory compared to the last decade, but still pretty low in light of the worry the market has experienced going into April 2 tariff announcements. But in really moody times, this indicator rises to over 25, which it did several times in—you guessed it—2022. I'm guessing that if you're reading this, you may also be thinking of 2022 right now, since that year also saw fears of inflation and a stagnant economy that caused markets to sell off. So today we're going to drill into that and look at two reasons why, no, 2025 is not 2022 all over again. We'll do it by looking at both inflation and stagnation to see if, in fact, either (or both!) are reasons for investors to worry. (Sneak preview: The answer is no—but we do need to be more selective and look at areas beyond stocks, like corporate bonds, including the bond fund we'll talk about below.) I dislike pointing this out, because I almost always get comments from readers who (rightly!) tell me that prices keep going up in supermarkets and elsewhere. But, well … Inflation, on a year-over-year basis, remains below 3%, according to the consumer price index (CPI). That's far from the alarming levels we saw in 2022. To be sure, prices are still going up: And as upsetting as that's been for consumers, the important point for the stock market is the question of how much. We can consider the current rise of 3% year-over-year to be a safe zone. And if you look at the right side of the chart above, you can see that since inflation fell off a cliff in early 2023, it has been slowly (but inconsistently) creeping closer to 2%. The verdict here is clear: Inflation is not trending back to the eye-watering levels we saw in 2022. Yes, we do need to keep an eye on this, but it isn't reason to panic. But what about the economy as a whole? Earnings Growth Paths BlackRock Global Chief Investment Strategist Wei Li pointed to this chart recently when she said in a recent LinkedIn post that corporate earnings are rising 'still above the historical trend of 6% to 7%.' In other words, companies are not only growing profits, but they are doing so at a stronger rate than they tend to, on average. It's also worth noting that the S&P 500 saw earnings rise 17.8% in the fourth quarter of 2024, the fastest pace since the fourth quarter of 2021, when companies were comparing themselves against the economic shutdowns of 2020. That gives them some additional resilience in the face of tariffs and other unpredictable changes. Investors are totally ignoring that earnings number, as well as the fact that 77% of S&P 500 companies exceeded EPS estimates when they reported earnings in the last quarter. That earnings growth is accompanied by 4.2% revenue growth at the start of 2025 and 2.8% spending growth by consumers after we take inflation into account. I know this is a lot to take in, but the takeaway is that the average American is spending more not just because prices are going up, but because they're buying more goods and services. Companies, in turn, are taking in more revenue and expanding profit margins. And they're making their operations more efficient, in turn causing their earnings to rise, too. All of this is good news for investors. So the recent market price decline is a buying opportunity. My beat, of course, is CEFs—often-ignored funds that yield around 8% on average. So let me talk about what all this means for our CEF strategy. The short answer is that we need to be very selective in this environment—and target other corners of the CEF market beyond those funds that hold stocks. In 2025, we've seen CEFs hold their own for the most part, with average discounts to net asset value (NAV) for all CEFs around 5%, with stock funds at 6.2%. That might sound generous, but discounts were more like 8.5% in 2022, so this tells us there are fewer CEFs that are generously discounted. This is why we've been holding off on adding more equity CEFs to our portfolio this year, choosing to focus instead on corporate-bond CEFs. As I write this, we have just two tickers in our equity-CEF bucket. And we continue to like bond funds—especially those whose managers have been able to buy higher-yielding bonds with long durations. Those bonds are especially well-positioned as interest rates fall (something I see happening as the economy slows, which I expect as we move into the second half of 2025). Case in point: the Nuveen Core Plus Impact Fund (NPCT), a 13%-yielder trading at a 7% discount to NAV today. As I write this, it holds 132 bonds with an average leverage-adjusted effective duration (which measures how much a bond is likely to go up or down in value in relation to interest rates) of 8.7 years. That means NPCT will be able to bring in its bonds' income streams for nearly a decade. And those bonds' value will only increase as rates decline. The fact that we can pick this one up at a 7% discount to the value of the bonds it holds is a nice bonus and suggests more price upside ahead. Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.' Disclosure: none
Forbes
31-03-2025
- Business
- Forbes
Why Index Funds Are Out, And These 3 Big Dividends Are In
Investment asset allocation and rebalance concept. getty In our Thursday article, we talked about a 'quiet shift' in the markets, from growth stocks to value—and we named 2 CEFs yielding 9%+ that are primed to profit from it. Yes, the recent jump in volatility is a big reason for that. So today, we're going to look at another side of the rotation we're seeing—a shift from passive investing to active. As we move further into 2025, it's getting clearer to me that we're into a stock-picker's market. Sitting in an index fund just won't cut it. That said, at my CEF Insider service, we're still bullish on stocks (and stock-focused closed-end funds, many of which hand us 8%+ yields), and we'll get into two stock-focused funds, along with another that holds preferred stocks—kind of a stock/bond hybrid—below. Because there's no question that success in this market will require active management—moving into, and out of, the right stocks and sectors at the right times. Of course, many mainstream investors aren't interested in that—it's too much work! Which is why I'm betting that many of them are likely to give CEFs a closer look as we move further into 2025. As they do, they'll discover what we've known at CEF Insider for years: CEFs let you sit back and collect high yields (and price upside) while 'farming out' picking the actual investments to a professional human manager. That makes now a great time to pick up some well-run CEFs as active management (finally!) regains appeal. Doing so lets us buy our CEFs at a discount to net asset value (NAV, or the value of their underlying portfolios), especially in the wake of the recent selloff. Then, as more investors pile in, we get to ride along as those discounts shrink, pulling our CEFs' market prices higher as they do. Which brings me back to those three CEFs I mentioned off the top—the Liberty All-Star Growth Fund (ASG)—a CEF Insider holding—the SRH Total Return Fund (STEW) and the Flaherty & Crumrine Preferred and Income Securities Fund (FFC). All are trading at discounts and boast dividends that are either sky-high (9.4% in the case of ASG) or set to grow (like STEW's 4%-yielding payout). ASG is a multi-manager fund that invests in large-, mid-, and small-cap growth stocks. This means it leverages the knowledge of experts in different sectors (tech, financial, etc.), as well as experts with experience investing in big companies, small companies and everything in between. ASG is interesting now because, in a sense, it gives us two discounts. The first is the fund's discount to NAV, which is 7.9% as I write this, even though the fund has delivered an 8.4% annualized total return over the last decade, based on its market price, as of this writing. That 7.9% discount is well below its five-year average of 1%, which is our first discount here. The other one is on the fund's stocks themselves, and we can see the recent dip in those by looking at its NAV performance, including dividends. That's entirely the result of the last few weeks of volatility: ASG Total Returns Ycharts Meantime, ASG offers a rich 9.4% dividend yield. Unlike ETFs, which typically provide minimal yield, ASG's managed-distribution policy (meaning ASG management can raise or lower payouts depending on what's best for the fund's long-term returns. Moreover, ASG's overall yield is actually higher than it looks, since management regularly pays special dividends. ASG Dividend Income Calendar With a discount to NAV and a dip in its portfolio performance, ASG is set up to gain as more investors 'farm out' their stock picking. Buy it now and we could collect that 9.4% 'base' payout in the meantime. Next up is the SRH Total Return Fund (STEW), which sports one of the biggest discounts in CEFs, at 23.1%. That's wild when you consider that STEW delivered a tidy 12.7% annualized return over the last decade. Moreover, that 23.1% discount is nearly five percentage points wider than STEW's long-term average of 18.2%. STEW Discount Ycharts STEW's top holdings include Berkshire Hathaway (BRK.A, BRK.B), which comprises nearly 40% of the portfolio between the two share classes, as well as other well-known large caps, like JPMorgan Chase & Co. (JPM), Cisco Systems (CSCO) and pipeline master limited partnership (MLP) Enterprise Products Partners (EPD). So why is this fund trading at such a deep discount? Simply put: neglect. STEW doesn't have the same name recognition as some larger CEFs. But with markets now rewarding active strategies and investors looking to large caps during this volatility, that's set to change. STEW is also valuable because management can put 40% of their portfolio in stocks like BRK when they're undervalued, while SEC rules limit passive funds to stick to no more than about 10% of their assets in any one holding. Once investors pick up on STEW's strong performance and deep discount, the gap should narrow. And with a very well-covered dividend, you're very likely to see higher payouts over time, building on the 4% yield you'd get on a buy made today. In fact, history strongly suggests that's exactly what'll happen here: STEW Dividend Ycharts Just in the past five years, STEW's payout has jumped 62%, and as you can see at the right of this chart, its payout growth is accelerating. That bodes well for anyone buying this bargain-priced CEF today. The Flaherty & Crumrine Preferred Securities Income Fund (FFC) holds preferred shares, which trade on an exchange, like stocks, and represent ownership in a company. But their price movements are more like those of bonds. And, like bonds, they're sensitive to interest rates. More on that in a second. Banks and insurance companies are the main issuers of preferreds, which is why 54% of FFC's portfolio consists of financial services firms, with preferreds from the likes of Wells Fargo and MetLife. That's something to keep in mind when you're considering how FFC fits into your overall portfolio weighting. Beyond that, the fund is a good way to pick up a basket of preferreds and lock in a 6.8% yield while doing so. FFC Dividend Income Calendar Above you can see the rate sensitivity of FFC's dividend in action, with the payout moving lower as rates rose in 2022 and 2023, then steadying and rising as rates topped out and began to move lower (along with a special dividend late last year). Here's what makes FFC particularly interesting now: It historically trades at a premium to NAV of 1%, but it's currently at a 5.8% discount. That's a big break from its norm, and it's unlikely to last. Preferred securities tend to do well when rates are stabilizing, and that's where we are now, with Jay Powell saying he's content to hold off on further cuts until the effects of Trump administration policies (especially around tariffs) become clearer. Even so, the latest projections from the Federal Open Market Committee do still indicate that two rate cuts are expected in 2025, probably toward the end of the year. When that happens, preferreds will benefit, and funds like FFC are likely to see renewed interest—which I see pushing the fund's discount back toward a premium. That leaves us with FFC's 6.8% dividend (with potential for more payout growth) to collect while we wait. Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.' Disclosure: none
Forbes
22-03-2025
- Business
- Forbes
Here's My 8% Dividend Plan To Ride Out This Market Volatility
The market pullback we've seen in the last couple of weeks really hasn't come as a surprise to me. The economy is sending what you could—at best—call mixed signals right now. And stocks, as they do in uncertain times, are reacting. I expect more volatility ahead, so today we're going to talk about ways to protect ourselves while maintaining the 8%+ dividend streams we're drawing from our favorite closed-end funds (CEFs). (Read: We're not going to cash here.) Instead we're going to focus on a strategy that's been around as long as investing itself—diversification—by putting a bit more weight on assets beyond stocks. That's what's great about CEFs: You can buy CEFs that hold a range of assets, such as the two I see as great diversification picks today: the preferred-stock-focused Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund (PTA), with an 8.4% payout; and the PGIM Global High Yield Fund (GHY), a global bond fund with a 9.6% dividend. (Note that GHY is a holding in our CEF Insider portfolio.) Regular readers of CEF Insider know we've been expecting the pivot we've recently seen in stocks and have discussed it in the last couple of issues. After seeing the inevitable recovery from the 2022 mess throughout 2023 and 2024, it was clear that stocks had gotten ahead of themselves. And to be sure, the signals the economy is giving off remain murky. If the S&P 500 were to fall to a 10% decline from the start of the year, that may be a great buying opportunity (it's off about 3% from January 1 as I write this). Of course, I'll be watching those signals closely and will flag the moves we need to make in response—buys and sells—in CEF Insider. For now, though, let's run through the economic picture we have in front of us, and how it tees up growth for GHY and PTA. Over the last half-decade, the US economy has been growing at a strong clip, and we've settled at around a 2.5% growth rate after inflation (that mention of inflation is important: we're talking about real growth in the economy, regardless of how high or low inflation is). This is good news, and it points to a basic stability in the economy that, over the long term, is bullish; America is growing at around 2.5% per year, pretty close to the 3.1% average we've seen since 1948 and close enough to the 2.8% average we've seen in the last 50 years. In short, the economy overall isn't in a bubble, nor is it in a sharp contraction. Things are, well, pretty okay at the moment. That's worth remembering after a month of ruthless selloff action because it tells us that in the long term, investments—including stock investments—will pay off, as they always have. Still, markets, as they say, take the escalator up and the elevator down, and it seems like we've already gotten in and someone has pushed the 'down' button. So what should we do? There is growing evidence saying that, yes, we should seek alternatives to stocks now. That's something we've been actively doing in CEF Insider in recent months and will continue to do. This is also where PTA and GHY come in, as we'll see in a moment. First on the negative side, there are signs that both wealthy and lower-income consumers are losing confidence in the economy, with a decline similar to what we saw in 2020, when the pandemic hit, and in 2021/2022, due to post-pandemic inflation. Consumer Sentiment Apollo Academy This needs to be taken with a grain of salt, however. After all, the economy was fine in 2021, and 2020 was a great year for stocks, even with the pandemic, thanks to the Fed's intervention. But sentiment leads behavior, and if this negativity gets entrenched, we could see more people cut back on spending. Retail Sales Trend Federal Reserve The above chart is where we can see some really good news, though. While it looks like there's been a big slide in year-over-year retail-sales growth over the last few years, this is wholly due to pandemic effects. In 2021, we saw a huge gain in spending because people could leave their homes again, and the slide in 2022, to a slight decline in January 2024, was a normalizing effect, like a slingshot that was pulled tight and then released before going slack. And since a year ago, we've seen a steady rise in retail sales, to a 4% year-over-year growth rate as of January 2025. That's a healthy clip, and it signals that most Americans aren't pulling back quite yet. Still, there are alternative indicators showing that some parts of the economy are seeing weaker spending. Those include the National Retail Federation's more real-time indicator showing that retail sales went negative on a month-over-month basis in January and February. So we're seeing at least some consumer pullback as some people feel less secure in the future of the United States economy. If you are experiencing whiplash, I get it! Mixed economic data is notoriously tough to drill down into. But the key thing to keep in mind is that everything here points to a 'mid-cycle' economy, where America is no longer going gangbusters, but it's not in a sharp pullback, either. That said, we are closer to a recession than we've been in the last four years. Which is why it's time to pivot toward high-yielding alternative funds like the two I mentioned earlier. Let's start with the 8.4%-paying Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund (PTA), which is cheap, with its discount to net asset value (NAV, or the value of its underlying portfolio) coming in at 6.8% as I write this, well below the fund's 4.9% average discount over the last year. This indicates that the discount's decline is purely the result of the market panic. That's partly because PTA is misunderstood by most investors. It holds preferred stocks, which essentially means it benefits from higher, stable dividends even if stocks fall (since they yield more on average and payouts are prioritized over those of common stock dividends). Preferred-stock funds tend to suffer short-term volatility when stocks first take a hit, along with any other non-government asset, only to recover soon after, when their high dividends attract passive income-seeking investors. Moreover, PTA benefits if the US economy is seen as weakening because that would push the Fed to cut interest rates. That, in turn, boosts the value of PTA's portfolio, since preferreds, like bonds, go up in price as rates fall. Now let's talk about the PGIM Global High Yield Fund (GHY), with a 9.6% dividend and a discount that's raced toward par lately: It now trades at just a 0.8% discount to NAV. I see that modest discount flipping to a premium because GHY, like PTA, will benefit if America's economy is seen as weakening. That's because a weaker economy means a weaker dollar, and a weaker dollar would, in turn, boost the value of the foreign bonds in which GHY invests. In short, both funds should be safe havens for income-hungry investors on more stock-market weakness. That makes both attractive pickups now, with GHY getting the edge from me, due to its bigger yield and 'discount momentum.' Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.' Disclosure: none
