Author Archive: Michael Foster

One often-overlooked way for closed-end funds (CEFs) to give us a profit boost is for management to buy back a fund’s shares.

By now, buybacks are probably familiar to most investors: With “regular” stocks, buybacks reduce a company’s share count, which boosts earnings per share and other per-share metrics, indirectly boosting share prices.

With CEFs, buybacks have a bit of a different effect. With these high-yielding funds, we want to focus instead on how buybacks affect the discount to net asset value (NAV, or the value of a CEF’s underlying portfolio).

Buybacks, Fixed Share Counts Help Management “Control” CEF Discounts

Members of my CEF Insider service know that we love discounts to NAV because they’re the primary indicator of CEF value.… Read more

I get it if you’re a bit wary of this latest market rally: We’ve got a volatile (to say the least!) election now days away. And while the Fed says rates are headed lower, there’s still a lingering uncertainty about where, exactly, they’ll land.

While a bit of anxiety is understandable, we do not want to make the same mistake many “vanilla” investors do at times like these: go all into cash.

For one, humans are terrible at predicting the future—remember those warnings of a 100% chance of a recession in 2023?—so safe to say a good number of today’s investment worries are unlikely to come to pass.… Read more

I have to laugh when I hear a pundit say that individual investors can’t beat the S&P 500 (and you and I both know this is something we hear quite regularly!).

Truth is, it’s not that hard. Heck, you really only have to choose an ETF from a different sector, like real estate investment trusts (REITs)!

REITs Beat Stocks in the Long Run

As you can see, these “landlords”—shown by the performance of the benchmark SPDR Dow Jones REIT ETF (RWR) in purple above—have easily outpaced the S&P 500 for the 20 years following the ETF’s inception back in 2001.

That outperformance occurred even with the subprime-mortgage crisis (which was obviously real estate focused) and the pandemic selloff (which hit REITs particularly hard, shuttering malls, warehouses and offices across the world).… Read more

Last year, the White House published a blog post titled “As the US Consumer Goes, So Goes the US Economy.”

No matter what your politics are, I think we can all agree that America’s economy depends on consumers buying things. For us income investors, then, the consumer’s health is a key thing to watch, as it ultimately sets the direction of stocks.

So how healthy is the US consumer today, and can we confidently buy stocks—and better still, high-yielding CEFs like the one we’ll talk about below (current yield: 10%)?

Often, the signals are murky. America is, after all, a big country with a lot of people in it, and some of those people are obviously doing better than others, so it’s tricky to zero in on the overall health of consumers.… Read more

Of course, we all love it when the stock market soars like it has. But what if stocks pull back? We’ve already seen three big drops this year, so it’s fair to think another one could be lurking around the corner.

With that in mind, it makes sense to diversify beyond stocks—especially now. There’s a type of closed-end fund (CEF) out there that’s perfect for this: those that hold municipal bonds, which are issued by state and local governments to fund infrastructure projects.

CEFs, as members of my CEF Insider service know, are great buys for income (the average CEF yields around 8% today) and gains: These funds’ discounts to net asset value (NAV, or the value of their underlying portfolios) give us price gains as they narrow.… Read more

When I show you a chart like the one below, your first thought might be that we’re looking at, say, the recent stock performance of NVIDIA (NVDA)—or maybe a biopharma firm that just dropped a breakthrough treatment:

Not a Tech Stock—Just a “Boring” Index Fund

But you’d be wrong. What we’re looking at here is the iShares MSCI China ETF (MCHI), an index fund tracking the Chinese stock market, up to its peak early last week.

That jump is the direct result of the Chinese Communist Party’s recently announced stimulus package.

The gains have attracted the attention of Chinese day traders and speculators, as well as those in the West.… Read more

Normally when interest rates fall, we closed-end fund (CEF) investors are tempted to pick up a fund like the 7.3%-paying Royce Small-Cap Trust (RVT).

It seems like a particularly savvy move today, with this small cap–focused CEF trading at a 10.3% discount to net asset value (NAV, or the value of its underlying portfolio). Cheap!

But is that really a good value, or could RVT get cheaper still?

Let’s take a look, starting with small caps generally. Like large caps, they benefit as lower rates boost consumer spending. But there are two other factors that make falling-rate periods particularly advantageous for smaller firms:

1. They mean lower borrowing costs for investors, allowing them to invest on margin more than they would otherwise.

Having a diversified portfolio is pretty much Investing 101, right?

I mean, it’s one of the first things we all learn as investors. But there’s a problem here: Going for balance in “regular” stocks, bonds or ETFs can mean leaving income on the table.

To see what I’m getting at here, check out the average yields on two ETFs many people buy for stock and bond exposure. For stocks, I likely don’t have to tell you about the SPDR S&P 500 ETF Trust (SPY). It’s the popular S&P 500 tracker. And it yields a microscopic 1.2%.

There are plenty of options on the bond side, but let’s go with a fairly high-yielding ETF, the SPDR Bloomberg High-Yield Bond ETF (JNK).… Read more

Here’s an idea that might sound just a little bit odd at first: You can actually get retirement-investing advice that’s too conservative.

That may not sound like a bad thing, right? After all, who doesn’t want to be extra sure they have enough to clock out?

The problem with this, however, is that being overly conservative has the very real consequence of keeping us in the workforce much longer than we need to be.

I bring this up because I was thinking of the “4% rule”—which points to 4% as the amount of your portfolio you can safely withdraw in retirement—the other day.… Read more

Closed-end funds (CEFs), with an average yield of around 8%, are terrific for just about any investor—especially those looking to their portfolios to help pay the bills.

Heck, even if you’re not leaning on your CEFs for income, those big payouts are gold—you just reinvest them to boost your portfolio’s value and book an even bigger income stream going forward.

But of course, not all CEFs are great investments, with some best avoided unless they trade at big discounts to net asset value, or NAV, the key indicator of value for these funds. And sometimes even a great fund isn’t the best one to buy, despite a big yield and an impressive record.… Read more