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.
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.