Closed End Funds (CEFs): 19 May 2025

Allium

Have you been following the Hawking Portfolio?  If not, you may want to give a close looking to this unique approach to investing.  If income is of interest then investing in Closed End Funds (CEFs) is definitely an option.  Before launching into this management model I highly recommend investors first read Steven Bavaria’s book, The Income Factory.

If one is in a higher tax bracket this style portfolio is better suited to tax deferred accounts such a IRAs or Roth IRAs.

How might one go about selecting CEFs to include in a portfolio?  Check the Hawking portfolio for examples.  Then check out the CEF Connect website.  For starters check these three factors.

1. Distribution Rate.  This is the interest percentage paid on an annual basis.  Take care not to chase the highest percentages.
2. Discount Premium.  What is the value of the underlying securities?  Look for CEFs with negative NAV or Discount Premiums.
3. Effective Leverage.  This is the most subjective of the three criteria.  I tend to look for leverage values that are 25% or lower.

If one is interested in portfolio diversification the CEF portfolio provides another alternative to the basic ones I track here at ITA.  To review, here are the options.

• Basic broad based Asset Allocation such as the Schrodinger.  The Schrodinger also happens to be a Robo Advisor portfolio.
• Slimmed down Asset Allocation portfolios such as the Kepler, Gauss and several others.
• Equity only portfolios such as the Copernicus.
• Sector BPI management style such as the Franklin, Carson, and McClintock.

Of these diversified portfolio management models, the Schrodinger requires zero attention.  All one needs to do is save an invest.  Likewise, the Copernicus requires a minimum of attention.  Once a CEF portfolio is set up, there is minimum attention required.  Review the holdings perhaps once a year.  Requiring the most attention are the Sector BPI portfolios.

If readers have additional information or advice in selecting CEFs for portfolio inclusion, please include your ideas in the Comment section provided below.  If my three suggestions are in error, please include corrections.