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Are CEF Investors Getting Suckered Into High Yields?

Published Tue, 06 Sep 2016 14:39:03 -0400 on Seeking Alpha

Closed-end funds, or CEFs, continue to be an alluring income product for investors, with fixed-income yields continuing their roughly 35 year death spiral. The ability to purchase assets at a discount and buy into typically cheap added leverage can add up to serious comparative value for both stock and bond investors.
Unfortunately, the cost of entry is usually quite high when compared to an ETF with a similar strategy. Pick a fund with sub par, overpriced management and the attractive discount you thought you were getting might turn out to be more than well deserved.
"Sucker" Defined
Fellow REIT writer Brad Thomas coined the term "sucker yield" a few years ago to describe the lofty yields endemic in the mREIT space. Basically an offshoot of the notion that "if something is too good to be true, it usually is," Brad's definition typically applies to high-yield companies with erratic payouts, deemed unsustainable payouts, as well payouts that can be seen as demonstrably uncovered.
The term can be seen as highly subjective in my view. I'd argue that one shouldn't necessarily discount "sucker-type" situations so long as the risks and nuances behind the payout are clearly understood. Valuation, as always, has to be part of the analytical mix. At times it may make more sense to opt for a weak-dividend security trading at a handsome, dirt-cheap value as opposed to a more durable yield trading in the nose-bleed valuation... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
WELLS FARGO ADV MULTI-SECTOR INCOME FUND 12.59   0.0 0.00 0.00 9.48
H&Q HEALTHCARE INVESTORS 19.76   0.0 0.00 1.84 9.31
H&Q LIFE SCIENCES INVESTORS 16.51   0.0 0.00 0.00 9.00
EATON VANCE TAX-MANAGED BUY-WRITE OPP FUND 15.44   0.0 0.00 0.00 8.61
EATON VANCE ENHANCED EQUITY INCOME FUND II 17.41   0.0 0.00 0.00 6.83
BLACKROCK MUNI INTERMEDIATE DURATION FUND 14.24   0.0 0.00 0.00 3.72
BOULDER GROWTH & INCOME FUND 11.21   0.0 0.00 0.00 3.62
YUM! BRANDS 113.06   26.7 4.24 1.68 1.51
BERKSHIRE HATHAWAY B 214.20   0.0 0.00 0.00 0.00

WELLS FARGO ADV MULTI-SECTOR INCOME FUND - ERC
WELLS FARGO ADV MULTI-SECTOR INCOME FUND - ERC  


Older articles featuring Wells Fargo Adv Multi-sector Income Fund (ERC):
3 Bond Funds With Low Durations And High Yields
Short-Duration Portfolios With High Yields: 5 CEFs
Rising Above Europe's Sinking Bond Yields
Wells Fargo Closed-End Funds Declare Monthly Dividends
2016 Mid-Year Update For 20%-Yielding CEFL: Outperformance But Distributions Declining
Chart Of The Day: Global Bond Yields Reach All-Time Low
Swap Rates Below Bond Yields? What Does It Mean?
These Beaten-Down High-Yield Plays Are Poised For A Sharp Rebound
Wells Fargo Advantage Closed-End Funds Declare Monthly Dividends
Wells Fargo Advantage Closed-End Funds Declare Monthly or Quarterly Dividends; Wells Fargo Advantage Global Dividend...

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