Closed End Fund Purchase

I use closed-end funds (CEF) to cover my annual required minimum distributions (RMD) in my inherited IRA account (labeled as account #1 in the portfolio). I like CEFs as my primary mechanism to own bonds for a couple of reasons, which I’ve outlined before.

Last year I came up with a list of CEFs that I liked for various reasons, and started building what I call my “CEF Portfolio”. The mix of funds I chose works out to a little over a 7% yield, so I’ll need this portfolio to be about $70K in order generate $5K in annual income. My RMD is more like $4K, but hopefully the IRA is growing which means bigger RMDs.

I’m almost halfway there. I’ve been dragging my feet filling out these positions because bond prices were supposed to go down when interest rates went up. That hasn’t really happened, so I’m going to move on with my plan, and try to pick up the pace a little bit.

I’m not going to just drop the $40K overnight though, so I’m still averaging into the positions…just hopefully a little less glacially.

Which is why last week (Friday July 7th) I bought:

EAD – 300 shares at $8.4833/share (including $1.20 trade commission).

This boosts my projected annual investment income by $147.60 based on the current annual distribution of $0.492/share

I chose to add to EAD over the other funds because it was trading at the largest discount to NAV (-8.41%) and sported one of the higher distribution yields (8.46%).

The fund is primarily invested in US corporate junk bonds (72% of holdings are BB or B) with an average duration of less than 5 years (adjusted for leverage).

There’s a lot more detail in the fund’s portfolio profile at morningstar if you’re interested.

8.4% is a pretty big discount, but it’s actually smaller compared to the 3 year average which is over 9%. I’ll take it!

Do you invest in CEFs?

Do you like bonds? Hate bonds?

Do you think I’m crazy for investing in junk debt?

Want to just vent on the internet?

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