Low Interest Rate Woes? High Yield Closed-End Funds May Be the Cure

NEW YORK (TheStreet) -- High-yield closed end funds such as GAMCO Global Gold & Natural Resources (GGN), Kohlberg Capital (KCAP) and Guggenheim Enhanced Income Equity Fund (GPM) run counter to the paltry returns of the current low interest environment. The average yield for a member of the Standard & Poor's 500 Index (SPY) is around 1.8%. High-yield closed end funds may be attractive not just to those seeking more income.

Closed-end funds are like mutual funds, but with a finite number of shares issued at the initial public offering. As a result, closed-end funds can sell at less than asset value. When a sector is out of favor, the closed end fund can sell at much less than asset value if the price drops.

That discount has an obvious appeal to value investors.

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For growth investors, the allure is just as compelling.

Just as the assets sell for less when a closed-end fund sells at a discount, so is the growth potential discounted in the share price. In addition, it is much more difficult to set an accurate value on the growth ahead for all of the holdings of a closed-end fund. For those buying at a discount, that can result in robust overall returns from market inefficiencies.

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