Passive Income of $5,600 Annually Can Be Had From These 5 High-Yield Closed-End Funds

The notion of creating a vehicle for individual investors of modest means to access a mix of securities on an incremental basis goes to the heart of mutual funds. The first US mutual fund on record is the Massachusetts Investors Trust fund, which was founded in 1924. In the subsequent century that followed, mutual funds evolved to accommodate a wide range of investor priorities and market interests. 

Closed-end funds (CEFs) are a type of mutual fund that differs in several ways from standard, open-ended mutual funds:

• CEFs trade on either NYSE, NASDAQ, or another exchange, whereas mutual funds buy and sell by separate subscription based on the quoted Net Asset Value (NAV) for the day.   
• As mutual fund total shares vary according to NAV, a percentage of cash needs to be kept on hand for mutual funds to efficiently close out redemption orders. CEFs have a fixed number of shares, so their market price may reflect a premium or discount to their NAVs. 
• As a result, CEFs have more funds invested in the market as a general rule, since they have no such daily cash redemption contingency requirement. 
• Some CEF managers have the discretion to use leverage to increase gains, which can add risk to a CEF that would not be present in a mutual fund with a comparable objective. 

Given the breadth of configurations and securities combinations that a CEF may contain in its portfolio, finding CEFs with high annual payouts for income purposes. The inherent asset mixes introduce a level of diversification risk mitigation that is increased if one creates a customized portfolio using several different CEFs. Based on market price at the time of this writing, all of the CEFs listed below have APY over 10%. Investment amounts are quoted based on a $10,000 investment for ease of calculation, but the returns are yield proportional for whatever investment amount is selected. 

RiverNorth Opportunities Fund

Stock #1 : RiverNorth Opportunities Fund (NYSE: RIV)  

Yield: 12.50%

Shares for $10,000: 820.3

Annual Dividend Total: $1,250.00

RiverNorth Opportunities Fund is a closed end fund that contains a mix of other CEFs, SPACs (Special Purpose Acquisition Companies), investment company debt, equities, and fixed income securities in a portfolio that is delivering an impressive 12.50% annual yield. The fund is managed by Chicago, IL based RiverNorth Capital Managers, LLC. The RiverNorth fund CEO and CIO is Patrick Galley. The RIV portfolio manager is Steve O’Neill. 

The top 3 asset classes in the RIV portfolio are 1) SPACs – 23%; 2) Fixed Income – 20%; 3) US Equities – 15%. Although RIV delivers a hefty dividend yield, it does have a growth upside component as well. Trailing returns for 1-year: 10.37%, 3-year: 30.14%, and 5-year: 54.33%  RIV payments are made monthly to shareholders.

PIMCO Income Strategy Fund

Stock #2:  PIMCO Income Strategy Fund (NYSE: PFL)   

Yield: 11.71%

Shares for $10,000: 1,212 

Annual Dividend Total: $1,171.00

Experienced traders may carry both long and short positions, which entails increased risks. Even savvy traders can get caught and sustain losses if they aren’t attentive or hedged properly. For a mutual fund focused on fixed income, a short position can entail unlimited risk if liquidity issues prevent a quick short cover in the event the manager has bet in the wrong direction. 

The Pacific Investment Management Company (PIMCO) is headquartered in Newport Beach, CA. Among its family of funds, the PIMCO Income Strategy Fund is interesting because it may carry both long and short positions on bonds. 

Within its $362 million AUM, the PIMCO Income Strategy Fund’s primary long positions are roughly 22.58% AAA, 23.77% below B (junk), 19.38% B, 12.90% BB, and 10.55% AA. Sector wise, the portfolio breakdown consists of 35.6% government bonds, 33.6% cash or short term paper, and 19% corporates. Its 1-year return is 14.35%, 3-year return is 33.5%, and its 5-year return is 41.30%. PFL payments are made monthly to shareholders.

Franklin Limited Duration Income Trust

Stock #3: Franklin Limited Duration Income Trust (NYSE: FTF)  

Yield: 11.50% 

Shares for $10,000: 1,545

Annual Dividend Total: $1,150.00

Founded shortly after WWII, the Franklin Templeton name has become synonymous with a large catalog of mutual funds of all types. Over the past 75 years, it has added the Putnam, Legg Mason, and other financial firm brands under its auspices. 

FTF’s $403.45 million total AUM is allocated into a relatively conservative risk mitigated portfolio allocation strategy for an income focused fund. For example, its largest position is in Square Capital 4472 Marketplace Loans. Comprising 14.56% of the portfolio, these loans are tied to point of sale credit and debit card retail transactions, and the loans are automatically repaid through a fixed percentage of a retail outlet’s card transactions conducted through the Square Capital system.  The next 3 largest positions are in money market funds and GNMA mortgage backed securities. FTF’s 1-year return is 10.58%; 3-year return is 35.30%, and 5-year return is 30.77%. FTF payments are made monthly to shareholders.

DoubleLine Income Solutions Fund

Stock #4: DoubleLine Income Solutions Fund (NYSE: DSL)        

Yield: 10.78%

Shares for $10,000: 823.04 

Annual Dividend Total: $1,078.00

There are countless numbers of investment opportunities that arrive in international markets that often fall under the radar of the news cycle in North America. DoubleLine Income Solutions Fund is a closed-end fund based in Tampa, FL that invests in global fixed-income instruments with a goal of maximizing consistent high income. CEO Jeff Gundlach, Director of International Fixed Income Luz Padilla, and Director of Global Developed Credit Rob Cohen make a point of capitalizing on international debt securities that will deliver substantial yields to the DSL portfolio. 

With $1.76 billion AUM, the fund’s portfolio is heavily weighted in short term 0-3 year duration  emerging market bonds, which are over 35% of the overall portfolio. Bank loans are the second highest weighting, with 22.15%, followed by 19.78% high-yield corporates. DSL’s 1-year return is 6.04%. Its 3-year return is 39.67%; the 5-year return is 29.51%. DSL’s payments are made monthly to shareholders. 

BlackRock Multi-Sector Income Trust

Stock #5: BlackRock Multi-Sector Income Trust (NYSE: BIT)      

Yield: 10.17%

Shares for $10,000: 687.75

Annual Dividend Total: $1,017

BlackRock is the world’s largest asset manager and maintains a presence across every financial platform in an umbrella that contains dozens of subsidiaries. The BlackRock Multi-Sector Income Trust is a closed-end, fixed-income mutual fund devoted exclusively to debt and loan investments. Portfolio Manager Scott MacLellan maintains a mix with sufficient percentages of investment grade bonds for risk mitigation purposes while loading up on high-yield junk bonds for the income stream. 

AAA Fannie Mae and Freddie Mac holdings account for 8.5% of the portfolio. Transdigm (B+), Cloud Software Group (B), and Hub International (B) are the next largest holdings. BIT’s 1-year return is 8.69%. Its 3-year return is 34.21%, and its 5-year return is 55.84%. BIT payments are made monthly to shareholders. 

Based on $10,000 invested in each of the five CEFs below for a total of $50,000: 

CEF	Yield	Annual Dividend
RiverNorth Opportunities Fund (NYSE: RIV)	12.50%	$1,250.00
PIMCO Income Strategy Fund (NYSE: PFL)	11.71%	$1,171.00
Franklin Limited Duration Income Trust (NYSE: FTF)	11.50%	$1,150.00
DoubleLine Income Solutions Fund (NYSE: DSL)	10.78%	$1,078.00
BlackRock Multi-Sector Income Trust (NYSE: BIT)	10.17%	$1,017.00
TOTAL:		$5,666.00

The mean APY on this collection of CEFs is 11.33%. So an investment of any size with equivalent allocations will deliver proportionate returns, based on current yields at the time of this writing.  

These five examples are just some of the high yield CEFs that are available in the market. 24/7 Wall Street has an extensive database of high yield equities, ETFs, CEFs, et al. and has published numerous articles with different combinations to suit a variety of risk tolerances and investment sector interests. 

While CEFs and mutual funds have diversification risk mitigation built into their design, investors should still monitor any that are added to their portfolios for news and other announcements. If the income component is crucial for paying expenses and other necessities, a prudent move to keep in mind would be to keep watch over 2-3 potential alternatives with equivalent yield. Should market or geopolitical events adversely affect any CEF in the portfolio that could alter its yield, a quick swap will allow for the income stream to remain undisturbed. 

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