This 7.6% dividend is trading for 89 cents on the dollar


Yese know we are in an expensive market when even obscure high yield securities like closed end funds (CEFs) are expensive!

But we can still find deals in this space, which is by far my go-to area for looking for big wins. In the center of attention today: a totally neglected fund (from an equally neglected management company) with a significant dividend of 7.6%.

This deal cannot last – with yields so low on everything from government bonds to large cap stocks, investors will inevitably be looking for this hidden high yield product. And we’ll be in an early position when they do. (We’ll also explore two other funds from the same management company that you should avoid at all costs.)

The truth about CEF discounts

If you’ve ever invested in CEFs, you know that discount to net asset value (NAV, or the value of investments in a CEF’s portfolio) is a critical metric to watch. It measures the difference between the value of a CEF’s portfolio and the price at which it is trading in the market.

The result ? You want to buy a CEF at a historically high price, then take advantage of this “discount window” that closes as it closes, thus pushing the stock price higher.

The problem is, in CEFs, like everything else, there aren’t many discounts to be found these days. With an average discount to NAV of just 1.7%, CEFs are actually much more expensive than they usually are. To see how expensive this pricing is, consider that over the past decade, CEFs have posted an average discount of 7%.

CEFs seek higher valuations in part because of what they do: offer big streams of income (CEFs currently earn 6.9% on average) in the midst of a “dividend drought”. It’s not easy to squeeze $ 690 per year (or $ 57.50 per month) in income from a $ 10,000 investment, but CEFs do it – and it’s way better than the $ 10.83 paltry S&P 500 per month on that same $ 10,000!

This is also the reason why it is still the ideal time to buy CEFs: their disproportionate payments are still more than sufficient to encourage investors to seize these funds, causing their market prices to rise. . Additionally, many CEFs are well diversified and hold stocks and bonds in some of the best companies in the world. Finally, the best CEFs have been beating their indices for years – another great reason to get started.

But that doesn’t mean that all CEFs deserve your attention. A company’s funds – including that cheap 7.6% return I mentioned at the start – have gone under the radar of CEF investors, and that’s where our opportunity lies today.

Aberdeen cold

Aberdeen Standard Investments has been around since 2017, when Aberdeen Asset Management (a UK finance company) merged with Standard Life, one of Britain’s largest insurers. Aberdeen’s CEFs represent only a small portion of the $ 700 billion in assets it manages, although the total number of CEFs it offers – 11 in total – is higher than many other issuers of THIS F.

However, seven of these 11 funds are heavily discounted, with an average discount of 8.7% among them. This is much more than the average CEF discount.

Source: CEF Insider

This is in part due to a geographic accident: the Aberdeen base in Great Britain could discourage some investors; another part of that is the geographic intent: five of the company’s lowest-priced funds focus on countries and regions that have garnered less investor enthusiasm in recent years – Australia, Japan and the markets emerging among them.

3 discounted Aberdeen funds – 1 winner, 2 losers

This regional bias explains the strong discounts on the Aberdeen Emerging Markets Equity Income (AEF) and Aberdeen Global Premier Properties Fund (AWP), which are trading 11.3% and 5.4% below net asset value, respectively.

Based on that, you would think that AEF, an equity fund whose portfolio includes large-cap Asian giants like Samsung Electronics (SSNLF), Taiwan Semiconductor (TSM) and Tencent Holdings (TCTZF), is a dog.

But if we compare AEF’s NAV performance to that of the benchmark Vanguard FTSE Emerging Markets ETF (VWO) since the launch of VWO in 2005 (AEF is actually much older, having been launched in 1991) , a different image appears:

Closely follow the index, but with more income

As you can see, AEF’s portfolio has been in sync with the broader emerging market investment market, which is what you would expect from a large cap focused fund. But here’s the difference: Its 7.6% income stream is higher than VWO’s paltry 2% return, so AEF buyers get a large chunk of their return in cash. That, plus AEF’s 11.3% discount, makes it an extremely attractive option.

The same can’t be said of AWP, a 7.4% return focused on real estate as part of its global strategy. But that didn’t really help AWP: it lags far behind the SPDR Dow Jones Global Real Estate ETF (RWO), a good benchmark for international real estate, making AWP an unattractive buy, especially with its relatively higher discount. weak.

AWP leaves the game

If we take a look at one of Aberdeen’s most popular (and also international) funds, the Aberdeen Total Dynamic Dividend Fund (AOD) with a yield of 6.9%, we really see how a close look at CEF separates the winners of the losers, even when they are managed by the same company!

AOD’s 9% haircut is massive and surprising for a fund that manages $ 1.1 billion in assets (relatively large for a CEF). But when we look at the recent performance of the fund, we see that this fund is discounted for good reason.

Global equities overtake AOD

AOD’s return is a fraction of that of a global index fund, making it an easy-to-resist CEF that deserves its exceptionally high discount.

The bottom line? AEF is the Aberdeen fund to buy now

The fact that the AEF rebate is even larger than the AOD rebate, although it closely tracks the index and pays out a generous source of income, shows how inefficient the world of CEF can be. And this is a great opportunity to get into AEF before its 11.3% discount closes.

4 CEFs that crush the AEF (with yields of 7.3%, more than 20% in advance)

AEF is one of the few real “deals” in CEFs at the moment, but we are far from lucky here.

My team and I spent months sifting through the CEF market and discovered 4 other even more attractive CEFs, offering equally huge dividends of 7.3% but with a ‘perk’ in the form of absurd discounts that place them at 20%. + price increase in the next 12 months.

Add that big 7.3% dividend and your earnings forecast together and you could easily envision a solid 27% price and dividend gains around the same time next year!

In addition, this portfolio of 4 funds offers a lot more diversification than what you would get by simply buying AEF and calling it a day. With 4 quick purchases, you have access to the best Real Estate Investment Trusts (REITs), Infrastructure Stocks, Corporate Bonds, Convertible Bonds (which can “turn” into stocks to maximize your upside potential) and Industry-ready stocks. to soar in the current reopening.

Don’t miss your chance to buy these 4 solid income coins now, while they are still cheap. Just click here and I’ll tell you all of my top 4 picks in a special investor report.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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