Rising inflation? We closed-end fund (CEF) investors aren’t panicking—we know we can flip rising prices into 7% dividends and 37%+ gains!
Our strategy is simple—pick up CEFs focused on one specific corner of the economy. In fact, if you’re holding a selection of our CEF Insider service’s picks, you’re probably doing this already!
Our Contrarian Income Play Explained
Let’s start with the latest inflation numbers. As measured by the personal consumption expenditures (PCE) index, inflation clocked in at 4.4% on a yearly basis in September, up from 4.2% in August. The story many see behind this is that supply constraints have cut the number of products on store shelves, causing prices to soar.
Supply-chain shocks are no doubt part of the issue, but there’s more going on. Because since the end of lockdowns, and at an accelerated rate in 2021, companies’ profits have been soaring. Most recently, they reached record levels.
Corporate Profits Take Off
Let’s stop here and put this in context: if we were in an inflationary spiral, where companies needed to pay more to keep going, wouldn’t you expect to see profits declining? Of course! But we’re seeing the opposite, which suggests supply constraints, while part of the inflation story, aren’t all of it.
A longer view explains what’s happening: we’re still adjusting to the unusual lows of last year. With easy comparables in 2020, inflation numbers will continue to look high all this year (meaning we shouldn’t panic about inflation unless and until the numbers are high in 2022). If we zoom out on the PCE index, we see that 2020 was the aberration and 2021 the norm, not vice versa.
High Inflation? Not Really
Instead, we’re seeing a return to consumption: more people are traveling, eating out and so on, and the economy is getting back to full capacity, with some areas (oil and gas, for example) struggling to claw their way back from the depths of the production drops they saw in 2020.
We can see that rise in consumption in the PCE, which, in addition to being the Fed’s favorite inflation metric, also measures how much consumers are spending.
Confident Consumers Mean Everything
That rise is partly due to labor power; in 2021 we’ve seen workers demand higher wages or leave jobs for better paying ones. Higher paid workers spend more, and that’s showing up in the data.
What’s our CEF play for this consumer-driven profit bonanza, then?
As companies that are immediately consumer facing are best positioned to benefit, one of our CEF Insider portfolio holdings, the Eaton-Vance Tax-Advantaged Global Income Fund (ETG) is nicely placed to ride the wave here. It’s soared 37% since we added it to our portfolio in January 2020, with most of its return in dividend cash thanks to its high payout (yielding 7% and being paid monthly).
ETG gives us most of our gain in predictable dividend cash. What’s more, its portfolio holds many consumer-driven companies, with Alphabet (GOOGL), Amazon.com (AMZN) the Walt Disney Co. (DIS) and Apple (AAPL) among its top 10 holdings.
— Michael Foster
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Here’s something else you should know about CEFs: they’re incredibly safe! Of all CEFs that are a decade old or older, 96% have made money over the last 10 years.
And when you drop oil and gas funds, that percentage leaps to 99%!
That’s an incredible statistic, especially when you consider that CEFs offer huge dividends, too: the average CEF yields 7% today—and that’s just the average! Some of these funds kick out safe, steady payouts of 9% and more.
In fact, the 5 CEFs I’m urgently recommending now yield 6.5%, on average, with the highest payer of the bunch throwing off a gaudy 7.8%. That’s enough to hand you a nice $32,500 yearly income stream on a $500K investment.
PLUS, these 5 CEFs are rare bargains—so much so that I’m forecasting 20% price gains from this 5-fund “mini-portfolio” by this time next year. That would add another $50,000 in gains to your $32,500 in dividends!
Full details on these 5 money-making CEFs are waiting for you now. Click here and I’ll give you all the critical data you need—names, tickers, complete dividend histories, buy-under prices and more.
Source: Contrarian Outlook