10 Crisis-Proof Funds With Upside Potential

 | Aug 10, 2020 06:37AM ET

After watching the S&P 500 crash, then levitate, over the past seven months, I’ve come to one conclusion: high-yield closed-end funds (CEFs) are disrespected now—and that makes them a great contrarian buy.

Sure, some CEFs are cheap for a reason (I’m looking at you, energy funds). But there are plenty of undervalued winners, too. And plenty of CEFs have crushed the market this year, including 10 that have returned more than 8%. This top-10 list, which I’ll show you below, includes CEFs that have doubled, tripled—and even quadrupled the S&P 500’s 4% return.

What’s more, these funds all have one thing in common that sets them up for even bigger gains: strong management, proving once again that who manages your money is just as important as what you invest in—especially if you’re looking to boost your portfolio’s income stream with the 7% (or higher) dividends the typical CEF throws off.

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Here’s the funny thing: of the nearly 500 CEFs tracked by my service , just over a quarter have made money in 2020, based on their market-price returns.

Unfortunately that’s where most first-level investors stop. But we need to go further, because this headline figure is partly a trick of the CEF structure. You see, unlike with exchange-traded funds (ETFs) , CEFs’ market prices trade independently of their net asset value (NAV, or the value of a CEF’s portfolio).

So, by tracking CEFs’ NAV, we can see how the managers themselves are doing, not the market’s perception of how they’re doing. And the NAV-performance story is much different from what the market price tells us, with nearly half of all CEFs up on a NAV basis in 2020.