This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Closed-End Funds Beat ETFs, Mutual Funds

Morningstar's Taggart notes that some closed-ends suffered huge losses during the financial crisis. But he says that investors who had the stomachs to hold through the rough times were rewarded as the markets rebounded.

Should you consider closed-ends now? Perhaps. If you believe that the Federal Reserve will keep its pledge to hold down interest rates into 2014, then closed-ends are worth considering. In an environment where rates stay flat -- or rise just a bit -- leverage should remain profitable, and closed-ends should continue outdoing mutual funds and ETFs. But keep in mind that if rates spike, the cost of leverage would climb and hurt closed-end returns.

To find funds that can thrive in a period of low rates, look for closed-ends with strong long-term performance records and substantial leverage. A solid choice is Aberdeen Asia-Pacific Income (FAX), which invests in bonds from Australia and such Asian countries as Korea and Indonesia. The fund yields 5.4%. During the past five years, Aberdeen has returned 12.2% annually, outdoing 70% of global bond funds. Most of the fund's assets are invested in investment-grade government bonds. Aberdeen has 16% of assets in bonds that are rated below-investment grade. Those give higher yields, but come with extra risk.

Stock investors can consider Gabelli Equity Trust (GAB). During the past ten years, the closed-end fund has returned 10.4% annually, outpacing the S&P 500 by 2 percentage points. Veteran portfolio manager Mario Gabelli has long been known for his distinctive style of value investing. Gabelli favors companies with solid balance sheets that sell for less than what private investors would pay to acquire the entire businesses. The fund currently has a big stake in industrials. Holdings include farm equipment giant Deere (DE - Get Report) and machinery maker Honeywell (HON - Get Report).

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
DE $80.42 -0.61%
FAX $4.68 1.30%
GAB $5.63 2.40%
HON $101.48 0.41%
AAPL $111.40 1.70%


Chart of I:DJI
DOW 17,043.20 -7.55 -0.04%
S&P 500 2,013.43 +15.91 0.80%
NASDAQ 4,822.7660 +11.9780 0.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs