investing

Best and worst investment ideas for 2016

Closed-end bond funds trading at discounts
Closed-end bond funds trading at discounts © iStock

Closed-end bond funds trading at discounts

Closed-end funds, or CEFs, are mutual funds that trade on the exchange like stocks. "Following the 3rd-quarter sell-off, a number of closed-end bond funds with solid assets are selling at unusually deep discounts," says Martin Fridson, chief investment officer at wealth management firm Lehmann Livian Fridson Advisors. He favors funds with a mix of investment-grade and high-yield corporate bonds.

While Fridson didn't recommend specific funds, one example is the BlackRock Credit Allocation fund. It invests in investment-grade bonds and junk bonds and trades at about a 12% discount to its net asset value. That gives it a juicy yield of 7.8%. This fund and many others like it use leverage (borrowed money), which can boost returns when interest rates are low but depress returns when rates are high.

In choosing a CEF, Fridson offers these recommendations:

  • Look for consistency of return: top quartile performance in 1-, 3- and 5-year performance versus peers and benchmarks.
  • Confirm that the management team that produced the superior performance is still in place.
  • Verify that the superior performance wasn't the function of a single, aggressive sector bet.
  • Look for deeper discounts than the historical average.
  • As a bonus, look for price momentum.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
advertisement

CDs and Investment

Can heirs cash an old trust?

Dear Dr. Don, The youngest of 6 children, I am 48 years old. My father joined the Navy at 22. In Italy, he met his bride and my mother, and returned to the U.S. to raise our family. In 1959, he bought a trust certificate... Read more

advertisement

Blog

Mark Hamrick

Investors brace for election uncertainty

Markets don't like uncertainty, and a Trump win for the presidency would seem more conducive to unpredictability than a Clinton victory would.  ... Read more


Connect with us