Investing for Income? 5 Reasons to Consider Closed-End Funds

Investors looking to generate higher income from their portfolios often turn to closed-end funds (CEFs)—and with good reason. 

CEFs are designed and managed with the goal of delivering attractive, regular and often tax-advantaged cash flows to shareholders in the form of monthly or quarterly distributions. 

CEFs can be a compelling choice for many income-seeking investors and may offer an efficient way to build, grow and sustain income in retirement. CEFs can also help investors address specific investment goals or concerns such as cash flow, interest-rate risk, market volatility or tax efficiency.

CEFs enjoy a number of structural advantages over their mutual fund and ETF stablemates that allow them to generate income differently. 

1. Ability to Deploy Leverage

Most CEFs use leverage to increase their investment exposure, which has the potential to enhance the portfolio’s income and total return.

2. Portfolios can be Fully Invested

Unlike most mutual fund managers, who often need to maintain cash reserves to meet potential shareholder redemptions (or must put money to work in rising markets in response to inflows), managers of CEFs can run more stable, fully invested portfolios, potentially resulting in higher net yields. 

3. Ability for Investors to Buy at a Discount

CEFs trade at market price, which can be below net asset value (NAV). Shares bought at a discount to NAV may offer a higher distribution rate on market price because each dollar invested receives earnings from more than a dollar’s worth of assets. Shares purchased at a discount to NAV may also reward an investor with higher capital appreciation should the discount to NAV narrow over time.

4. Attractive, Professionally Managed Distributions

Many CEFs employ distribution programs designed to facilitate regular, attractive and relatively stable distributions to shareholders. 

5. Ability to Invest in Less Liquid Securities

Because CEFs do not need to maintain cash reserves to manage daily inflows and outflows, the portfolio management team can invest in less liquid or more opportunistic securities in an effort to generate higher portfolio yields and capitalize on more attractive situations.

Read the full article here, and visit nuveen.com to learn more about CEFs.

^{The characteristics mentioned are not all inclusive and represent general attributes of typical investments of the types indicated. Open-end mutual funds, closed-end funds and exchange-traded funds are different types of investment vehicles with different expense structures and different inflows/outflows and distribution requirements.}

^{When evaluating investment choices, investors should be aware that closed-end fund distribution sources have historically included net investment income, realized gains, and return of capital. It is important to understand these sources, and also the fund’s distribution rate relative to its NAV performance. The distribution rate should not be confused with yield or performance. You should not draw any conclusions about a fund’s past or future investment performance from its current distribution rate.}

^{Important information on risk}

^{Past performance is no guarantee of future results. All investments carry a certain degree of risk, including the possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Certain products and services may not be available to all entities or persons. There is no guarantee that investment objectives will be achieved.}

^{Closed-end funds frequently trade at a discount from net asset value. At any point in time, including when sold, shares may be worth more or less than the purchase price or the net asset value, even after considering the reinvestment of fund distributions. It is important to consider the objectives, risks, charges and expenses of any fund before investing. For this and other information that should be read carefully, please view the prospectus or other current fund information provided by the fund’s sponsor.}

^{Leverage typically magnifies the total return of a fund’s portfolio, whether that return is positive or negative, and creates an opportunity for increased common share net income as well as the possibility of higher volatility for the fund's net asset value, market price, distributions and returns. There is no assurance that a fund’s leveraging strategy will be successful.}

^{This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or investment strategy and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor's objectives and circumstances and in consultation with their financial advisors. Financial professionals should independently evaluate the risks associated with products or services and exercise independent judgment with respect to their clients.}

^{Nuveen Securities, LLC, member FINRA and SIPC .}