NEW YORK (BestCredit) -- The current market environment posts some key challenges for investors. Relatively strong corporate earnings have brought several stock benchmarks to their all-time highs. While this should support valuations in equity markets for the remainder of the year, the upside is limited. Investors entering into long positions at current levels could be vulnerable to downside shocks if the Federal Reserve starts tapering stimulus at a more aggressive rate. At the same time, stalling results in macroeconomic data reports suggest that we will be held in a low-interest rate environment for the foreseeable future.
One strategy for navigating these difficulties is the closed-end fund. Many closed-end funds will actually trade at a discount relative to net asset value. This creates unique opportunities in the current market environment, where cheap stocks are difficult to find.
In addition to these NAV valuation discounts, many closed-end funds offer special advantages like elevated dividend payouts or exposure to the beaten-down commodities sector. Here, we will look at a few funds that can be used to establish long positions that can still benefit despite this complicated market environment.
Gabelli Equity Trust (GAB) looks to capitalize on value opportunities in common stocks. Some of the fund's larger holdings include Honeywell (HON), Deere (DE) and American Express (AXP). In addition to a well-diversified portfolio, the fund has a total expense ratio below 1.5% and has a great deal of momentum supporting its outlook. In 2013, GAB posted returns of nearly 40% on its NAV. Distribution increases this year should keep the fund in the market's spotlight. We have seen slight pullbacks in the fund during the early part of this year, but these moves should be used as a buying opportunity given the long-term performance history of Gabelli funds.