NEW YORK (
) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his
blog, anticipating which ETFs will be in play next.
In the following three blogs from the past week Don offered cautionary advice on a new closed-end ETF, explained why gold-backed ETFs are good to hold for the long term, and advised investors to keep a certain bellwether agriculture ETF in their long-term holdings.
Wait for This Closed-End ETF to Prove Itself
Posted 02/19/2009 12:09 p.m. EST
Today, PowerShares launched the first exchange-traded fund of closed-end funds (CEFs), the
PowerShares CEF Income Composite Portfolio ETF
On paper, PCEF looks like an innovative, tax-efficient income option for investors looking to gain exposure to a broad spectrum of CEFs. Where the rubber hits the road, however, this fund may not have the goods to appeal to ETF investors.
Since CEF's have "pass-through" tax structures, like open-end mutual funds, they do not pay taxes at the fund level on amounts distributed to investors. The taxation is said to "pass through" to the shareholders.
Shareholders of PCEF will receive this income and tax benefit in the form of dividends. PCEF consists of CEFs across three income categories: taxable investment-grade fixed-income, taxable high-yield fixed-income and equity option writing (selling).
PCEF's methodology is also designed to screen and weight funds according to their discount to NAV. Funds trading at a discount have a higher potential for yield.
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The top five holdings in PCEF are currently the
Eaton Vance Limited Duration Income Fund
NFJ Dividend & Premium Strategy Fund
AllianceBernstein Income Fund
Eaton Vance Tax-Managed Diversified Equity Income Fund
BlackRock Global Opportunities Equity Trust
Sounds good, right?