“High High Low” Closed-End Fund Report, May 2024

“High High Low” Closed End Fund Report

Quantitative screening helps quickly narrow down attractive candidates from a database of over 500 closed-end funds (CEFs) for further due diligence and research.The “High-High-Low” report was inspired by the following comment from a member of the CEF/ETF Income Laboratory:

Stanford, you should write a follow up article on CEFs with dividend yields over 8%, coverage over 90%, and trading below NAV. What does that look like in today’s world? How many funds do that? What’s the Z-score? I think many investors looking for higher yields would be interested in identifying best-in-class aggressive funds that are nearly covering their dividends. You can then reassess your risk vs reward.

In the High-High-Low report, there are three attributes to screen for:

1. expensive Dividend (>8%) (i.e., yield of 8% or more)
2. expensive Coverage (>90%) (i.e., coverage of 90% or more)
3. low Premium/Discount Value (<0%) (i.e. trading at a discount)

How is coverage calculated?

For the fund companies listed below, the latest coverage figures from the fund’s most recent unaudited monthly estimates are used.

• PIMCO: Six-Month Coverage
• BlackRock: Last 3 Months Coverage
• Nuveen: Past 3 Months Coverage
• Eaton Vance: Coverage from the past three months

For the remaining funds, coverage ratios are calculated using return data from their most recent annual/semi-annual reports. Because these reports are only published twice a year, coverage ratios have a larger lag (up to six months) compared to fund families that publish monthly return forecasts.

We hope that these rankings of “high-high-low” CEFs provide fertile ground for further research and due diligence. As a reminder, these top lists are meant as a preliminary shortlist for further research and are not intended as a final analysis for a buy or sell decision.

Table header key:

P/D = Premium/Discount

Z = 1-year Z-score

Cov = coverage

1Y NAV = NAV total return for one year

Lev = Leverage

BE = Base cost

Data is, May 29, 2024.

1. Top 10 Most Extensive “High High Low” Discounts

The data below shows the 10 CEFs with the highest discount rates, yields above 8%, and coverage above 90%. For comparison, Z-scores, leverage, and baseline expenses are shown.

2. Top 10 lowest “High-High-Low” Z-scores

The data below shows the 10 CEFs with the lowest one-year Z-scores, yields above 8%, coverage above 90%, and premiums/discounts below 0%. The more negative the Z-score, the cheaper the fund is relative to its recent average discount. Leverage and baseline expenses are shown for comparison.

3. Top 20 “High, High, Low” Yields

The data below shows the 20 CEFs with the highest yields, coverage above 90%, and premium/discount below 0%. However, it is important to note that higher yields may also come with higher risk due to leverage, investments in risky assets, etc. Z-scores, leverage, and baseline expenses are shown for comparison.

4. Top 10 Best Combinations of “High-High-Low” Yields and Discounts

Buying a CEF with both a high yield and a discount not only gives you the opportunity to profit from the narrowing discount, but also gives you “free” alpha every time a distribution is paid, since paying a distribution is essentially the same as liquidating the fund at NAV and returning capital to unit holders.Only funds with yields above 8%, coverage above 90%, and premium/discounts below 0% will be considered.

FiveTop 10 Best Combinations of “High-High-Low” Yield, Discount and Z-Score

This index takes into account all three components: yield, discount, and Z-score. The composite index simply multiplies the three quantities together, revealing funds that are undervalued both absolutely and relatively. A screen is applied to include only CEFs with negative one-year Z-scores. Only funds with yields ≥ 8%, coverage ≥ 90%, and premium/discount < 0% are considered. (This month, there are only six funds that meet these criteria)