Reflections on Closed-End Funds
It’s a bit surprising, especially for someone like me who’s been a fan of closed-end funds (CEFs) for a long time, but sometimes they might not be your best option. It’s tricky to make that call, particularly when you consider that the average CEF is yielding a historically high 9.1%. Typically, the yield hovers around 8.5%. This spike in yields is largely due to a number of these funds trading at significant discounts compared to their net asset value (NAV).
In simpler terms, some funds are selling for less than what their actual assets are worth. This can lead to lower prices and higher yields, since generally, when prices drop, yields increase.
Yet, the current sentiment towards CEFs isn’t exactly glowing, which could perhaps present an opportunity for us. However, not every CEF is a solid pick right now. For instance, I’d steer clear of the top three performers, each with a market cap exceeding $200 million: ASA Gold and Precious Metals (ASA), Sprott Physical Gold Trust (Phys), and Sprott Physical Gold and Silver Trust (CEF).
It’s no surprise that these funds have had a good run this year, as they’re all focused on gold, which surged amid rising economic uncertainty. That’s usually what makes gold shine.
Beware the Gold CEFs
Despite their recent boosts, there are stark differences in performance worth examining. For example, Sprott’s physical gold and silver trust has similar returns to the SPDR Gold Stock (GLD) ETF, with about a 25% return. ASA, on the other hand, has done even better—more than doubling the returns of the other three funds.
This makes sense considering both Sprott’s offerings and GLD are heavily invested in physical gold, with very similar expense ratios—0.4% for GLD and 0.41% for Phys.
It’s also not shocking that “CEF” has performed poorly. This fund also invests in silver, known as “poor man’s gold,” which hasn’t kept pace with its gold counterpart this year.
Meanwhile, ASA stands out as a clear winner thanks to its holdings in gold mining stocks. Its largest investment, G Mining Ventures Inc., a Canadian company exploring precious metals, has nearly doubled so far this year.
Still, while these rapid profits are impressive, I doubt they’ll sustain over the long haul. Let’s consider why.
ETFs vs. CEFs for Gold Investments
If we rewind to 2010, when Phys launched, we notice that GLD has outperformed all three CEFs. This suggests that for long-term investments in gold, CEFs are not the best choice. Furthermore, ASA, while it had its moments, has underperformed, returning only 53% over the past 15 years, mostly lingering in the red.
There are several crucial insights here. First, if preserving your capital is the priority, ETFs are a better way to go rather than CEFs. Secondly, in terms of income, ASA’s yield of 0.2% seems quite meager.
Lastly, it’s important to note that gold isn’t a great long-term investment, regardless of how you approach it. To illustrate this point, if we overlay the performance of the S&P 500, we see a stark contrast.
Gold’s Long-Term Struggles
What this comparison reveals is that gold has largely stagnated against U.S. stocks over the past 15 years. The outlook isn’t very promising.
However, here’s where ETF investors might find the positives end. For stock investing, or really within the broader landscape, CEFs can offer better returns.
Take the Adams Diversified Equity Fund (ADX), for instance—this is a CEF I included in my services back in July 2017. Here’s how it stacks up against the S&P 500 index fund, SPDR S&P 500 ETF Trust (SPY).
ADX’s Outstanding Returns
This chart illustrates a stunning return of 218% from ADX, surpassing the S&P 500 while also providing significant dividends. CEFs like ADX not only outperform but also pay us generously compared to index funds.
My Monthly Dividend Portfolio
My monthly dividend portfolio offers a robust 10.2% payout—something gold simply can’t match.
- Large monthly dividends, as the name suggests.
- Valuable discounts that set it apart from gold investments.
This specialized portfolio is designed for today’s marketplace, focusing on delivering solid monthly payouts. It’s positioned to help you weather stock market dips and eventually yield strong returns when the market recovers.
These options are solid, dependable investments that aim for consistent revenue over time. Gold? Not even close. As it stands, the only viable way to profit from gold is through day trading.
My recommendation? Don’t get caught up in the short-term allure of gold. Instead, consider these reliable 10.2% payers. Looking back a year from now, you might be glad you did.
Check out the 10.2% monthly dividend portfolio.
