These Huge Yields (Up to 9.1%) Have a “Secret” Discount Set to Vanish

Key Points

• Closed-end funds (CEFs) boast a 9.1% average yield and can deliver 10%+ annualized total returns as their discounts to net asset value (NAV) narrow.
• The Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) trades at an 8.7% discount while offering a 7.9% dividend and 12.3% annualized NAV returns.
• The Eaton Vance Tax-Managed Buy-Write Income Fund (ETB) yields 9.1%, trades at a 7.8% discount, has an 11.3% NAV return, and historically averages a 1.7% premium.
• The John Hancock Financial Opportunities Fund (BTO) yields 7.5%, has delivered 18.4% annualized NAV returns over five years, and currently trades at a 5.5% premium that remains below its long-term norm.

I’m just going to come out and say it: If you want to be financially independent (and who doesn’t?), you must own closed-end funds (CEFs).

For those “in the know” about CEFs, the reason is simple: massive yields. As I write, closed-end funds yield 9.1% on average. And game-changing dividends like that are only one way CEFs reward us—and I’d argue they’re not even the best one!

The best-in-class CEFs out there—and here I’d definitely include the three we’re going to get into below—also offer strong total returns, with price gains and dividends combining to hand us overall returns of 10%+ yearly.

And with CEFs, we get a solid indication of when those returns may start to build. It’s an easy-to-find indicator called the discount to net asset value (NAV).

This discount stems from a key difference between CEFs and ETFs: CEFs can’t issue new shares to new investors post-IPO, so their market prices are often different (and regularly lower) than their per-share portfolio values (their NAV, in other words).

So if, say, you buy a CEF with a 10% discount, you’re buying its portfolio for 10% less than you could if you bought its holdings on the open market.

This sets up a nice “rinse-and-repeat” cycle for us: We buy a discounted CEF, collect its huge income stream, then sell at a premium down the road.

Of course, these kinds of opportunities don’t tend to last, and in the last year we’ve seen more CEFs trade at smaller discounts as investors start to clue in. But investors are focusing very tightly on quality here, given recent uncertainty. That’s got them zeroing in on only those CEFs with strong track records.

There are, however, some gems that have been left behind. Let’s look at three.

Overlooked CEF No. 1: A Global Income Play Selling for 8% “Below Retail”

First up is the Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO), which should attract a fat premium given the interest in global stocks these days. Yet ETO, with a mix of American mega-caps like NVIDIA (NVDA) and foreign powerhouses like AstraZeneca (AZN), trades at a fat 8.7% discount today. That’s despite its generous 7.9% dividend, which should be getting more attention. So, by the way, should the fund’s performance.

ETO’s Portfolio, and Market Price, Shine

Beyond the discount and dividend, ETO’s 12.3% annualized return on NAV (orange line above) should also be a shiny lure for investors. But as you can see, ETO’s market price–based total return (in purple) has lagged, inflating its discount from where it was a half-decade ago.

That’s clearly an error on the market’s part, and it makes ETO well worth a look today.

Overlooked CEF No. 2: Get in on “Pricey” US Stocks at a 7.8% Discount

We’ll find an even bigger discrepancy with the Eaton Vance Tax-Managed Buy-Write Income Fund (ETB), a 9.1%-yielder holding S&P 500 mainstays like Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA), Amazon.com (AMZN) and Berkshire Hathaway (BRK.A). 

This high-powered roster should put ETB on investors’ radar, yet the gap between its total NAV return (in orange below) and total price return (in purple) is huge.

ETB’s Portfolio Surges, Investors Shrug

With a 11.3% annualized return over the last half-decade (based on NAV), ETB’s managers have clearly done their job. Yet investors have taken little notice, causing its market price–based return to lag, and its discount to widen to 7.8%.

Completing the picture is the fact that ETB has averaged a 1.7% premium in the last decade. That gives it plenty of upside as its overdone discount flips to the fund’s “normal” premium.

Overlooked CEF No. 3: A Finance Fund With a “Discount in Disguise”

Finally, consider the John Hancock Financial Opportunities Fund (BTO), which subscribers to my CEF Insider service might remember. We’ve held BTO twice in the past and have booked nice double-digit total returns both times.

BTO, which yields 7.5%, focuses on the financial sector, mainly banking firms, with M&T Bank (MTB), Mississippi-based Renasant Corp. (RNST) and US Bancorp (USB) all top holdings.

Strong Portfolio and Price Returns Pair Nicely With a 7.5% Dividend

These stocks have given BTO a sprightly 18.4% annualized return on NAV (in purple above) in the last five years. Yet its NAV return is only slightly ahead of its market price–based return (in purple). This shows that investors are hesitant to sharply bid up the fund.

A Premium That Makes Sense to Buy

This is an interesting chart: BTO is priced at a 5.5% premium currently, which sounds pricey but is actually a deal given the fund’s long-term trend, which includes a premium that’s hit double digits several times in the last decade.

Investors have picked up on this, which is why BTO’s pricing went from around par earlier this year to today’s premium. Expect that premium to keep growing, especially if the stock market keeps rising, as well.

4 Funds With Bigger Yields—9.5%—and “Discount Slingshots” Set to Snap

Riding along as big discounts to flip to big premiums is a time-tested way of racking up FAST gains in CEFs—to go along with these funds’ huge dividends.

Now I want to reveal the next 4 CEFs set for a discount-driven “rocket ride” higher. These 4 funds sport even bigger discounts than the three above, and even bigger dividends: a massive 9.5% average payout.

That dividend alone is enough to beat the average S&P 500 stock’s long-term total return—in dividends alone, without considering the rocket fuel a closing discount would add to their market prices.

Don’t miss your chance to snap up these income (and gain!) generators while they’re cheap. Click here and I’ll walk you through each of them and give you a free Special Report revealing their names and tickers.