For a video presentation of this report from Gregg Greenberg, click here.

As Jim Cramer likes to say, there's always a bull market somewhere. You just have to find it.

So investors tramping through the beleaguered new-issue market shouldn't call off the hounds just yet. There's a spot you may have overlooked: covered-call closed-end funds.

Closed-end funds are actively managed mutual funds that trade essentially like stocks. Covered-call closed-end funds follow a strategy that, in its most basic form, involves buying shares and then selling call options on the same shares. This forfeits stock-appreciation gains but produces solid premium and dividend income. With bond yields low and the stock market sputtering, these funds are suddenly in great demand.

Over 15 new funds employing variations on the strategy have gone public since the Madison/Claymore Covered Call Fund ( MCN) kicked off the craze last July with a $260 million offering. The IPOs have raised more than $10 billion in less than a year.

One fund that cannonballed into the market with a major splash this February was the NFJ Dividend Interest and Premium Strategy Fund ( NFJ). The NFJ, which is co-managed by three separate investment firms under the larger umbrella of Allianz Global Investors, became the largest unleveraged closed-end IPO in history when it raised just under $2.5 billion.

And the pipeline for new product remains full, even after the yearlong blitz. New offerings in the category are soon to be released from closed-end powerhouses such as Blackrock, Nuveen and Pimco.

"This fund style is positioned to outperform in three of four markets: down, flat and modestly positive," says Tom Faust, chief investment officer at Eaton Vance. The firm has brought three covered-call funds to market in the past year, including April's $450 million IPO for the Eaton Vance Tax-Managed Buy-Write Income Fund ( ETB).

"Only during rampant bull markets do covered-call funds have difficulty, but nowadays people's expectations are modest, so these funds should continue to be popular," Faust adds.

Buy Write, Buy Right

Covered-call closed-end funds usually invest in a portfolio of equities, using a so-called buy-write strategy that surrenders potential stock appreciation by writing, or selling, covered calls for income. More advanced strategies add index options, convertible bonds and high-yield bonds to the mix.

The pioneer in the market, the MCN, for example, uses the buy-write strategy on top of widely held, large-cap stocks from diverse sectors, such as Intel ( INTC), Morgan Stanley ( MWD) and Best Buy ( BBY). The Nasdaq-100 Trust ( QQQQ) makes up 3.7% of the fund.

The MCN came public last July at a price of $15 and most recently traded at a price of $15.20. Obviously, it's no Google ( GOOG), which went public the following month at $85 and now trades above $230 a share. Still, the MCN has generated a huge amount of income for investors. It currently sports a healthy dividend of nearly 9%, which is like manna from heaven in the current low-yield environment.

"Interest rate concerns push people into equities as opposed to fixed income," says Alexander Reiss, closed-end fund specialist at Ryan Beck & Co. "The traditional constituency for closed-end funds is fixed-income investors looking for income, and covered-call funds enable fund families to reach out to them."

Plus, look at the other high-profile IPOs lately. Warner Music Group ( WMG) and Lazard ( LAZ) are down 10% and 17% respectively off their debuts earlier this month.

Premium Grade

Another wrinkle is that unlike their open-ended cousins, closed-end funds don't trade in lockstep with their net asset value. The MCN, for instance, is trading at $15.20, 5% above its NAV. And it's not alone in that regard. Most covered-call closed-end funds are trading at a premium to their NAVs, even at a time when many closed-end funds are facing difficulties due to concerns over the use of leverage.

A closed-end fund uses leverage by borrowing at low short-term rates and investing these funds at higher long-term rates, a strategy often referred to as the carry trade. This strategy increases a fund's yield and total return, if the spread between rates stays at current levels or widens.

On the other hand, if the spread narrows, as it has been doing as of late because of a series of Fed rate hikes, that could result in a lower dividend or a poor NAV performance. It's that possibility that's scaring investors away from other varieties of closed-end funds and driving down prices to discount levels. Leverage is rarely used by open-end mutual funds.

Jeff Keele, managing director at Claymore Securities, says the appeal of closed-end funds is that the managers have the flexibility to use leverage, even though the majority of covered-call funds don't seem to be using it.

Keele adds that closed-end funds also have another distinct advantage over their open-end counterparts, in that the manager "does not manage for redemptions." In other words, the managers don't have to worry about leaving extra cash around, often an open-end fund necessity that can be a drag on performance.

Whether this new asset class will continue to trade at a premium is hard to predict, but Reiss says the laws of supply and demand will eventually work it out.

"Supply may be rising, but if the stock market continues to meander along, then there will continue to be strong enough demand to keep these funds trading close to their NAVs or at a premium," says Reiss.

For a video presentation of this report from Gregg Greenberg, click here.