I think closed-end funds (CEFs) produce more income with no real downside. For example, if I retire with $2 million of taxable funds, why would I want $86,000 (a 4.3% return) with individual AAA long bonds when I can get $106,000 (a 5.3% return) from insured CEFs paid monthly? I understand that CEFs often trade at a discount to their Net Asset Value (NAV), but who cares if you buy them at a discount to NAV? It’s your entry point cost that’s relevant. In fact, you can buy them at a discount and often sell them when they move back to their NAV or to a premium. Tom Herzfeld has a 20-plus year track record of doing so. You often write that muni bonds will go up and down in value over time and that it’s best to disregard that. CEFs are no different, but you’re collecting 100 basis points in additional income each year. Also, CEFs are not very actively managed and management fees are miniscule. You get a diversified bond portfolio by selecting the quality you want and then just buying the discounted CEFs. The professionals from Nuveen, Eaton Vance and others add value as they adjust the portfolios to differing interest rate environments over time and as bonds mature and are replaced. I admire your business and am a periodic customer, but I think you’re biased toward individual bonds. Is my thinking flawed on CEFs?
A.L., Georgia