Forbes Insights: Finding Regular Investment Income With CEFs

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Finding regular investment income with CEFs Sponsored by NuveenInv

in distributions to investors in 2019. CEFs aren’t as widely held as other investment types, with only 24% of surveyed investors saying they own CEFs, compared to 75% who own a mutual fund or ETF. Yet among investors who say their portfolio income is meeting their expectations, almost 69% own CEFs. Nearly 80% of CEF owners surveyed agreed that CEFs provide attractive income. Often, a CEF could provide better income potential than other investing options.

How do CEFs produce income for shareholders? There are a number of ways, and it varies by fund what tools managers opt to use. One of the ways is traditional, fundamental research that identifies assets that produce income and should grow in value. This can result in a CEF that owns a basket of dividend-bearing stocks or bonds that provide straightforward income. Managers often extend a fund’s income creation through sophisticated strategies as well.

Most CEFs do use leverage, but 64 of the roughly 490 CEFs available to investors today don’t use leverage, according to data from CEF Connect. Recently, CEF Connect reported that nearly two thirds of CEFs recently had distribution rates above 5%—and 30% had rates above 9%.

 

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