There’s a 7.3%-paying fund out there that looks like the perfect buy—7.3% yield, growing payout and special dividends. Yet, if you hold this one, I urge you to sell yesterday.
It’s a dilemma we’ve all faced: There’s a stock or fund we’re aching to buy—but there are just one or two things holding us back. That’s certainly the case here. In fact, at pretty well any other time, we’d fall all over ourselves to buy this dominating tech play. At my CEF Insider service, we’ve done just that in the past.
But not today. Today we’re putting this one on the shelf—and I urge you to do the same. But not to worry: There will be another opportunity to strike here.
Let’s rattle through this quixotic fund’s strengths. Then we’ll get to the reasons for our decision to steer clear of it.
First, let me introduce this fund, whose name includes a clue as to both its appeal and our reason for selling: the Virtus Artificial Intelligence & Technology Opportunities Fund (AIO). We held AIO in CEF Insider from 2020 to 2023. And it yields even more today than it did when we bought back then: 7.3% versus 6.4%.
And, as mentioned, the portfolio is strong:
AIO’s Portfolio: Rock Solid—But That’s Not Enough On Its Own
Source: Virtus Investment Partners
In fact, management has done a solid job playing the AI trend, combining shares of firms that directly participate in AI development, like NVIDIA (NVDA) and Meta Platforms (META), with those smartly adopting AI to cut costs and boost profits, like JPMorgan Chase & Co. (JPM) and insurer Progressive (PGR).
AIO’s team is savvy about going beyond the obvious AI plays to find companies that are underpriced relative to how much AI can transform them. The fund’s 101% total NAV return since its launch, which was just before the pandemic, is testament to that.
Fundamentals Are Strong, Too
(Total NAV return tracks the performance of a CEF’s portfolio, including dividends collected, rather than its return based on market price—it’s the best indicator of management’s stock-picking prowess.)
That strong return has, in turn, helped AIO not only raise its regular dividend but pay out huge special dividends. The fund is overdue for another.
Payouts Are a Dream
In short, AIO is a strong fund with a lot going for it: right mandate for the times, great management and a payout set to rise. And yet it’s still a sell. Let’s get into why now.
Volatility Has Slumped, Pointing to a Bounce Higher
Astute market followers might think that, since the VIX—the market’s so-called “fear gauge”—has fallen to one of its lowest levels this year, concern about a selloff is rising.
That suggests complacency, which is risky considering simmering global-trade issues and still-unresolved US tariffs. The good news is that President Trump will likely settle on a lower level of tariffs than what was feared in April.
Even so, volatility is lower than it should be, given trade worries—and a spike could hit AIO hard, especially when you consider the factor we’ll look at next.
Pricey Valuation Tees Up a Plunge
Above we see the fund’s premium to NAV, which plainly tells us that investors are paying 8.8% more for AIO than its portfolio is actually worth. That’s the fund’s highest premium ever, and AIO hasn’t seen a double-digit discount for more than a year.
That, combined with the potential for higher market volatility, is why it is time to step back from this one.
Of course, a selloff would likely see AIO’s premium drop to a big discount, as occurred in April. If so, the fund would be an attractive buy. In fact, it wouldn’t surprise me if we see this play out in 2025—very likely by the end of 2026.
Until then, it’s time to pass on AIO and wait for its premium to evaporate. Then we’d be nicely set to scoop it up, ride it back to a premium (enjoying its payouts as we do), then sell. It’s the classic CEF profit cycle. AIO is simply at the wrong end of it—for now.
4 AI-Powered Funds That Crush AIO (and Are Urgent BUYS Now)
Do not get the wrong impression here: Just because we’re avoiding AIO does NOT mean we’re steering clear of AI investing altogether!
Far from it.
This is just a case of investors flocking to one of the most popular dividend plays in the space (“artificial intelligence” is right in AIO’s name, after all!) and walking straight past 4 even better—and far cheaper—AI-driven dividend plays.
I want to guide you through these 4 incredible income plays now. They match—or top—AIO in every respect, offering:
- Bigger dividends, with a blockbuster average yield of 9.7% and the highest payer of the bunch throwing off a rich 13.7%—not a typo!—and …
- Massive discounts that tee up much bigger upside than I expect from overbought AIO, as well as some downside “insulation” in the event of a selloff.
These 4 unsung income (and growth) plays are built for this moment, and we urge all investors to snap them up now. Click here and I’ll walk you through all four of them and give you a free Special Report revealing their names and tickers.