Play the market rebound with these double-digit return funds
A good thing—and probably the only One good thing – about the 2022 market sell-off is that it gave us dividend investors an opportunity to earn 10% returns that we can count on for the long term.
They come to us from closed-end funds (CEFs), a (too) long-neglected asset class that, frankly, is getting better by the day for those looking to retire on dividends alone – and frankly, we we should all be.
I do want to emphasize the long term here though, because at this point in the market correction you can put money to work efficiently, either picking up individual funds here and there or using dollar cost averaging (DCA) to build increase your income stream (and your portfolio) at a reasonable price.
To see what I mean, think back to the recession of 2008. If you had started buying then, no matter how bad the crash, you’d be fine today, 14 years later, even with the fire of tires which took place in 2022.
You will put yourself in a better position with CEFs because you get a large portion of your return in the form of cash dividends. With the three funds below, you can get a return of around 10%, which means $100 per month of passive income for every $12,000 you invest in them. Take that investment to $600,000 and you’re suddenly getting over $5,000 a month in passive income just for holding three funds that diversify your holdings across hundreds of companies and thousands of assets.
Then there’s the upside: the deep Net Asset Value (NAV) discounts that these funds boast are a plus in any market. If stocks continue to gain, these discounts should close, helping to propel their market prices higher. In a falling market, a large discount helps a fund’s price hold up, as bargain hunters are drawn in.
That’s the strategy at play here. Now let’s talk about tickers.
Start with a 9.7% return with small cap technology…
The black rock
In addition to small technologies like Monolithic Power Systems (MPWR), Bio-Techne
BlackRock, the world’s largest investment firm, oversees this portfolio of large-, mid-, and small-cap companies, and the firm’s deep research resources and strong talent base help it maintain its payout of 9.7%, while exposing you to 88 high-quality companies. at a time.
…Then add a real estate CEF at 12% off…
Even with the work-from-home revolution, there has been a surge in demand for real estate which has caused the value of many commercial and residential real estate to skyrocket. This is partly thanks to people looking to relocate to the suburbs or small towns and partly because of the demand for different types of office space suited to the post-COVID work culture. This is why a fund like the CBRE Global Real Estate Income Fund (RGI) worth watching closely right now.
IGR’s dividend yield (9.6%) and its discount (3.7%), the latter being lower than the 1% discount it traded at in mid-June, are even more attractive. The fund’s portfolio is backed by a portfolio of 86 different real estate investment trusts (REITs), which themselves own hundreds, sometimes thousands, of different properties in the United States and around the world.
CBRE is one of the largest real estate investors in the world, with offices in all the countries where it invests, which gives it a solid experience on the ground. Buy this one and you essentially become a worldwide owner without having to do the work that “regular” owners do. And you will also receive a dividend of 9.6%!
…Finally, consider this ESG play a short-term, rebate-focused buy
The Nuveen Core Plus Impact Fund (NPCT) is one of the most interesting CEFs. With an ESG mandate, he focuses on making investments that are sustainable from an environmental, social and governance perspective through companies such as Renewable energy
That hasn’t happened yet, however. With a 12.3% discount to NAV, NPCT saw limited buy-in. But there’s a good reason for that: the fund launched in mid-2021 and is off to a good start.
NPCT’s ESG focus did not hurt returns, as the fund outperformed the broader high-yield corporate bond market by a wide margin. But when the 2022 bear market hit corporate bonds, the fund’s discount to net asset value fell, although we see it starting to come back.
Buying into a fund whose discount shows upward momentum is a proven way to build wealth in CEFs. If NPCT’s discount reached the 2% mark it was trading at when the fund was outperforming the market, we could see capital gains of 11% on top of the fund’s 10.2% dividend. This would be on top of gains from the rising value of his portfolio, which has already rallied nearly 7% since the market’s last low in June.
All in all, we’re looking at the potential for a 40% total return in the near term if NPCT continues on its current trajectory – and the strength of the ESG trend (at least for now) suggests that this sort of gain could be on the way. table.
But also remember that interest in ESG tends to wax and wane with the broader economy, so this one may not be quite the long-term hold of two funds above. You will want to keep a close eye on NPCT and be prepared to sell if its declining discount stops or reverses.
put it all together
With these three funds, you benefit from significant diversification between equities, bonds and real estate, with an added touch of trendy ESG investments. Plus, you’ll get an outrageous 10% return, and I think you’ll agree that such a large payout is attractive in any market, including today’s.
Michael Foster is the Principal Research Analyst for Opposite perspectives. For more revenue ideas, click here for our latest report »Indestructible income: 5 advantageous funds with safe dividends of 8.4%.”