Closed-End Funds – A Simple Way To Greatly Boost Yield
If you hold closed end funds there are simple ways of boosting yield. A few timely switches between funds when the opportunities arise can double your annual profit.
Simple statistics and a flexible attitude to buying and selling is all you need.
Selling Nuveen Enhanced Municipal Value Fund of Beneficial Interest (NEV)
My August 1st article suggested you should ‘Sell This Muni Closed End Fund While You Can’.
NEV was trading at a 7% premium to NAV which was a divergence quite evident in my software:
Here is the same chart today:
As you can see, the price of NEV has fallen back to NAV.
Another way of evaluating NEV’s price was shown in my original article.
NEV was at its highest premium for the last 200 days, close to the all time extremes from 2012. The regression model with MUB had broken down.
The same chart today shows how the premium returned back to average levels.
Switching
When you see extremes like those highlighted above you really need to take advantage and sell as soon as you can. NEV fell 4.4% from $17.26 to $16.5 soon after I wrote the article. It may not sound a huge amount, but the idea is to boost your yield. If you really like NEV you can now buy it back.
If you want to be fully invested at all times I recommeneded switching to another fund, NQM. It had a high correlation to NEV, and was statistically the better choice.
An update shows how NEV has performed in relation to NQM.
NQM prices have stayed steady as NEV has fallen. They are essentially the same thing, with a very high correlation, but switching at the right time saved 4% in just over a month.
Conclusion
Considering there is a hunt for yield like never before, I am suprised at how many people seem to be throwing away profits by stubbornly holding closed end funds.
Switching between the best options is…..the best option!
Disclosure: I am/we are short NEV.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Unique Finance). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Just holding a small size of my initial short position to see if NEV will go at a discount
