Although the fund contains only 30 holdings, no single CEF will have more than a 4.25% in the fund subject to rebalancing. That will protect YYY holders against any sort of extreme outlying event that might occur in one fund.
Yield information isn't available yet from the company website, but it is common for CEFs to yield 6-8%. For comparison, the
PowerShares CEF Income Composite Portfolio
has a trailing yield of 7.9%.
The total expense ratio of YYY is 1.65%, but as with any fund of funds, the expense ratio has two components. The expenses for the underlying CEFs, known as acquired fund fees, are 1.15%, and the management fee to Magoon Capital is 0.50%.
Every investment product has risks, and understanding those risks are crucial to investment success. Potential volatility in YYY isn't a reason not to have exposure, but is an argument for moderate exposure.
CEFs trade well and offer generous yields, but every few years, an event like what is happening now in the markets will lead to 15-20% declines in short order.
Knowing that, an informed investor should have a proper portfolio weighting so that he doesn't panic and sell after a large decline. Just as declines come every few years, so too do recoveries.
Most CEFs have declined a lot in the last few weeks, and when this scare is over, most of them will go back up. That could make the debut of YYY timely.
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.