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Forbes
27-07-2025
- Business
- Forbes
This Gold Fund Is Red Hot But The Smart Money Is Already Selling
Gold ingots Today we're going to talk about a unique gold fund that's soared 69.4% so far this year—but despite that huge run, it's still not a buy. That said, there is a route to a buy here that I think will surprise you. So what's the name of this high-flyer? ASA Gold and Precious Metals Ltd. (ASA). It doesn't exactly roll off the tongue, and the fund itself isn't very well-known. The details: ASA has a bit more than $600 million in assets under management, making it small compared to most ETFs, CEFs' more popular cousins. As you can likely tell from the name, ASA focuses on gold and other precious metals. Gold itself makes up 72.5% of the portfolio, a collection of mining stocks chip in another 24.8%, and silver comprises a smaller 2% slice. Here's the first number that will likely stop you in your tracks: ASA's dividend yield is 0.2%. That, admittedly, doesn't get us too excited, especially with all CEFs yielding 8.5% on average, according to data tracked by my CEF Insider service. I would agree that this is a good reason to avoid ASA—but there's more to the story here. How This Gold Fund Stacks Up In 2025 Let's move on to value: As I write this, ASA has an 11% discount to net asset value (NAV). That's another way of saying that it trades for less than what its portfolio is worth. The fact that the average CEF has just a 4% discount really drives the point home here. However, if we look at ASA's history, we see something interesting. ASA Discount to NAV ASA has had roughly an 11% discount to NAV for nearly 25 years, with its market price being much lower in the early 1990s and much higher in the late '90s, due to that decade's unusual market dynamics. (In the early 1990s, gold lost favor, causing the fund to lose market demand. Then in the late-'90s, the stock-market bubble drove everything higher, including ASA.) So, is ASA undervalued? Sure. But it always is. So if you buy ASA today for a 'bargain,' you should probably expect to sell it for a bargain in the future, too. Okay, so the discount isn't a good reason to buy ASA. Is its performance? Well, let's look at that. ASA Total Returns ASA is up 69.4% in 2025, and the reason is obvious: The fund is focused on gold, and since gold has soared in 2025, so too has ASA. That's also why its dividends are so paltry: Gold doesn't yield anything, so most of ASA's portfolio yields nothing, as well. Since CEF investors look for yields, we should expect ASA's discount to stick around for a long time. But that hardly matters if you're earning 69.4% profits in a bit over half a year, right? True. But one problem with ASA is that it tends to fall hard after a run-up. Let's See How This Gold Fund Performed During Gold's Last Run Up Early 2016 was a great time for gold—even better than early 2025, in fact. ASA soared 119% in the first seven months of that year, when gold investments were soaring. However, after such a big gain, ASA (in purple below) was in the red for the following three years! GLD Outperforms Here we see the real risks of buying ASA: If you get to the fund too late, you could find yourself in the red for years afterward, even when gold itself—represented by the SPDR Gold Shares ETF (GLD) in orange above—is doing much better. So if gold has just had a run-up, expect ASA to be set to take a run down. That's not the only mark against ASA. Clearly, in the short term, the fund can outrun gold itself, thanks to its higher-risk portfolio. But that also means the fund's long-term performance is going to be much worse. History has borne that out: Take a look at this chart of ASA's NAV return (a better measure of management's skill than market price), verses GLD: GLD Long Term The strategy with ASA, then, is to always bear in mind that the fund can deliver profits to short-term traders—but it'll weigh down investors who buy for the long haul. So, with that in mind, here's the best way to invest in this one—if you choose to at all: Where are we in this cycle? This chart makes that clear. GLD Plateaus Gold has been plateauing since around March, but ASA keeps soaring. That makes it a sell at this point in the cycle. But if you're looking to invest in gold down the road, you're best to wait for the metal to sell off. That's when ASA could shine again—at least for a short time. 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 10% Dividends.' Disclosure: none
Forbes
16-07-2025
- Business
- Forbes
Why Municipal Bonds Are Underperforming (And What To Do About It)
Municipal bonds written in a note. Trading concept. With stocks levitating higher, you just might be starting to peek at other investment ideas (like municipal bonds) to spread out your risk and, most importantly, boost your dividends. It's always a smart strategy, and especially so now. We ran through an easy way to diversify while grabbing yourself a healthy 7.9% payout in last Thursday's article (click here to catch up if you missed it). Municipal Bonds Cut Your Taxes, Boost Your Payouts—But Timing Matters Which brings me to my favorite income plays, closed-end funds (CEFs), and in particular those that hold municipal bonds. ('Munis' are issued by state and local governments to fund infrastructure projects. Their dividends are tax-free for most Americans.) In a second, we'll look at one overpriced muni-bond CEF that's about to tumble—and another kicking out a 7.4% dividend that's trading at a rare discount (I'm talking 10% off its 'true' value here). How 8% Municipal Bonds Becomes 13% Yields Muni-bond CEFs' tax breaks can make a big difference. To give you a sense of just how much of a difference, the one muni-bond CEF in the portfolio of my CEF Insider advisory yields around 8%, but that could be worth 13% to you on a taxable-equivalent basis depending on your tax bracket. Municipal Bonds Trailed the Pack in the First Half of '25 Despite that, we do only hold that one muni-bond CEF now. That's in part because, when you look at benchmark index funds for the S&P 500, high-yield bonds, REITs and munis, you'll see that munis were the worst performers through the first half of this year. However, with the recovery in the S&P 500, it seems that munis' fortunes will probably change for the better as investors begin to fear a correction in the stock market and look for a steady, high-yielding (not to mention hugely tax-advantaged) alternative. Over the last five years, the main muni-bond index fund has been basically flat. That's partly because stocks have been on a solid run, drawing attention away from munis. But here's the thing: When this kind of lull in the muni-bond market happens, it's usually followed by a strong showing, especially if the rest of the market pulls back. Municipal Bonds Delivered in the 2008 Mess From 2007 to 2009, for example, muni bonds made little progress until the 2008 market selloff sent them to surging. That gave muni investors an 8.3% annualized return in two years while stocks were crashing. Fast-forward to the first half of 2025, and it looked like stocks were about to repeat what had happened nearly 20 years ago. But then they recovered, for the simple reason that, despite all the drama, the US economy is doing fine. The economy's continued strong growth is something we've been stressing at CEF Insider this year, despite the panic. And this is why we've held off on muni-bond CEFs instead of leaning into them. Not everyone has done the same, however. Top California-Based CEF Gets Bid to the Moon Here we see that the Invesco California Value Municipal Income Trust (VCV) has ranged from a deep discount to net asset value (NAV, or the value of its underlying portfolio) to a nearly 5% premium in 2025. In other words, investors are currently paying almost 5% more than VCV's portfolio is actually worth! VCV Premium Trouble is, that stark premium does not reflect growth in the fund's NAV. Therein lies the problem (and the risk). VCV's Portfolio, Market-Price Returns Part Company On a total-NAV-return basis, VCV is down more than 6% in 2025, as you can see in orange above. More worrying is the fact that VCV's total price return is nearly flat, after a rise that's happened in the last few weeks. In other words, the fund's premium has been pushed up by investors not selling it in response to that NAV drop. That lack of a response is why I urge anyone holding VCV to sell now. To be fair, this is a well-managed fund, and California has booked higher tax revenue in the last decade as industries (tech and media most obviously) have posted profit gains. Plus, the fund's 7.4% yield is higher than the average 6.4% yield across muni-bond CEFs tracked by CEF Insider. But that means VCV is a good buy when it's underpriced, not now, when it's overpriced. And we definitely will want to buy underpriced muni-bond CEFs when we can, because this underperformance has lasted too long: Munis have been out of favor for about three years now, way longer than prior lulls. Plus, stocks have recovered, despite the selloff earlier this year, and another selloff could cause selling in other markets, too. That would make muni bonds a good option for hedging risk elsewhere. VCV would be high on our list, but only when it swings to a discount. But what if VCV doesn't swing to a discount or keeps losing value, like it has been? In that case, we might consider a CEF like the abrdn National Municipal Income Fund (VFL), a 6.2% yielder trading at a 10.3% discount to NAV. This discount is strange, since VFL holds bonds from several states, so it's well diversified. Plus, munis are one of the world's safest asset classes. In other words, this deal can only stick around for so long. For that reason, if you're looking to get into (or add to your holdings of) muni bonds, take a look at VFL—or one of the other high-yielding muni-bond CEFs out there that aren't trading for more than their portfolios are worth. 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 10% Dividends.' Disclosure: none
Forbes
01-07-2025
- Business
- Forbes
This Is The Cheapest 8%+ Dividend I've Ever Seen
Large stack of money saving coupons. I know it's easy to get discouraged by the lack of bargains (not to mention the pathetic yields) available to us today, after stocks bounced back from the tariff-driven selloff. But I have good news on this front: We still have plenty of places to hunt for big yields, even in this 'pricey' market. We just have to step a bit beyond mainstream choices—specifically to closed-end funds (CEFs), of which there are about 400 or so on the market. As I write, these funds, which are as easy to invest in as any ETF, yield around 8.7% on average. But it's the valuation story (source of the price upside we demand in addition to those big dividends) that's particularly compelling here—and that side of things often gets overlooked as investors zero in on CEFs' outsized dividend payouts, many of which are paid monthly. Plenty of These 8%+ Dividends Are Bargains Now … As I write this, the average CEF trades at a 4.6% discount to net asset value (NAV, or the value of its underlying portfolio). And that's just the average. Many CEFs are cheaper. CEFs can offer these discounts because they generally can't issue new shares to new investors after they launch. The result is that the fund's market price can trade above or below NAV. When it's below, we say it's trading at a discount. This will all likely sound very familiar to you if you're a member of my CEF Insider service, as discounts to NAV are key to our strategy there. But sometimes we see a discount so extreme that it jumps off the page—here I'm talking bigger than, say, 16 or 17%, where most CEF markdowns bottom out. When we see a discount bigger than that, we have to look more closely to see if it's an overlooked bargain or if it's cheap for a reason. … But This 56% Discount Breaks the Mold Which brings me to the Highland Opportunities and Income Fund (HFRO), which yields 8.9% today and also pays dividends monthly. The fund also ticks our diversification box, as it holds its nearly $900 million in assets tied up in a mix of stocks (about two thirds of the portfolio) bonds and real estate loans (nearly the other third), and the remainder in cash. Most of this is tied up in NexPoint real estate assets, with a mix of equity and debt for NexPoint's single family homes investment, NexPoint Storage Partners, NexPoint Real Estate Finance and NexPoint Hospitality Trust. But the number that really leaps off the page is the discount, which clocks in at 56% as I write this. HFRO Discount That makes HFRO the most discounted CEF out there—and in fact one of the cheapest I've ever seen, though it is slightly less of a bargain than it was during the April selloff, when its discount fell below 60%. It's the erosion—but clear momentum, as you can see at right in the chart above—that makes this fund worth a look today, as a shrinking discount tends to pull up a fund's market price along with it. And there's something else that happens when a CEF trades at a discount—and especially a deep discount: It makes the payout safer. HFRO's 8.9% yield, for example, is calculated based on the (deeply) discounted market price. But when you calculate yield based on NAV, it comes out to a lot less: just 3.9%. In other words, HFRO needs to earn 3.9% to maintain its current payouts, which is a ridiculously low bar in today's markets, where the average high-yield corporate bond yields over 7% and S&P 500 stocks post an annualized return of 10% in the long run. Now this might sound a little too good to be true to you, and it partly is. Last time I wrote about HFRO, I noted that much of the fund's investments were in properties that the fund's management company, NexPoint, holds. Here's what I said then: That admittedly sounds a bit harsh. But when I was writing then, HFRO had returned just 4.4% in 2024 on a total NAV basis (or going by the performance of its underlying portfolio, including dividends collected and reinvested), after slipping in value over the preceding two years. And in fact, HFRO's total NAV return is still in the red over the last three years. In light of that, HFRO's extreme discount makes some sense. But at this point we need to ask: 'Just how low can a discount go? Surely over half off is a bargain, right?' And I have to admit, this tempts me to dip a toe into HFRO. But this chart shows that it's not quite the right time. HFRO 2025 Total Returns Year to date, HFRO's total return (based on market price) is up, thanks to that narrowing of the discount we just talked about. But it only started to build momentum at the start of May, after a big dip in March and April. Another market selloff could cause that dip to recur. HFRO 2025 NAV Returns Here we see that HFRO's total NAV return rose markedly at the start of 2025, when corporate bonds in general got a boost, but we've seen that momentum fade, and now the fund's total NAV return is nearly flat year to date. In addition, the fund's total NAV return trails the popular index fund for high-yield corporate bonds (a reasonable benchmark for HFRO—in orange below), which is up 3.5% in 2025. It trails the benchmark over the last decade, as well, having broken away from it in late 2023. So, it seems clear at this point HFRO isn't a buy today. If its discount gets wider, it may indeed be worth a look. Until then, I continue to see it as speculative, and we're happy to continue to keep watch on it from a distance. 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 10% Dividends.' Disclosure: none
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
