A closed-end fund raises a fixed amount of capital through an initial public offering, following which the shares are traded in secondary markets. These funds use the offering’s proceeds to invest in various securities, aligned with their long-term objectives. Closed-end funds are typically actively managed, with portfolio managers monitoring the markets closely to make changes in their holdings to maximize returns. These funds cannot administer secondary offerings to raise additional capital, or buyback existing shares floating in the markets. Shares of closed-end funds often trade at a premium or discount to their net asset value (NAV), and their holdings tend to be highly leveraged.

The high volatility in the stock markets as the United States’ recovery pace slows down with lower-than-expected jobs growth recently is motivating investors to turn again to fixed-income securities. As Dow futures turn negative following a disappointing April jobs report, popular Reddit forum Wallstreetbets (WSB) is showing interest in several closed-end mutual funds because they tend to generate higher returns than open-end funds.

Close-end funds Blackrock Municipal 2030 Target Term Trust (BTT), John Hancock Premium Dividend Fund (PDT) and Wells Fargo Advantage Funds – Wells Fargo Global Dividend Opportunity Fund (EOD) are frequently mentioned in the popular Reddit chatroom.

Blackrock Municipal 2030 Target Term Trust (BTT)

BTT invests at least 80% of its assets in municipal bonds, which are exempt from federal income taxes. It also invests in derivatives. The trust invests in investment grade municipal bonds  to ensure  high credit ratings and minimal risk. It actively manages the maturity of underlying bonds to attain a dollar-weighted average effective maturity that is approximately equal to the Trust’s maturity date. BTT has been mentioned 26 times in the Reddit chatroom over the past week.

BTT has $1.90 billion in net assets , and managed assets worth $2.89 trillion, as of May 7. Approximately 34.3% of BTT’s l holdings are financed through leverage, and 6.7% of the holdings are insured (as of March 31, 2021). The fund has a 0.4% management fee and a 1.56% gross expense ratio. BTT is currently trading at 3.8% discount to its NAV. As of March 31, the trust had a 3.94% yield-to-maturity and 2.01% yield-to-worst.

BTT distributes dividends monthly. It pays $0.75 annually, yielding 2.88% at its current price. The fund has a 3.64% four-year average yield. Moreover, BTT has a 2.88% distribution rate. BTT has gained 15.5% over the past year, and marginally year-to-date.

John Hancock Premium Dividend Fund (PDT)

PDT invests primarily in dividend paying securities. The fund’s main investment objective is to generate high income, as well as register a modest growth in capital. At least 80% of its net assets are  invested in high dividend paying stocks and bonds, while the remaining 20% is invested in common equity securities. PDT managed approximately $1.09 billion assets, as of March 31. In addition, the fund had $729.08 million in net assets, as of May 7. The fund has been mentioned 55 times in the WSB chatroom since May 4, 2021.

Approximately 34.1% of PDT’s assets under management were leveraged, as of March 31. The fund had a 24% portfolio turnover for the month ended March 31. Its major holdings include CenterPoint Energy Inc., Dominion Energy, Inc., and Interstate Power and Light Company. PDT has a 1.24%  management  and a 2.31% net expense ratio. PDT is currently trading at a 7.99% premium to its NAV and has returned 15.8% year-to-date. The fund pays $1.19 as dividends annually, yielding 7.33% at  the current price. It distributes the dividends monthly and has a 9.14% four-year average dividend yield. PDT has gained 30.3% over the past year, and 13.5% over the past three months.

Wells Fargo Advantage Funds – Wells Fargo Global Dividend Opportunity Fund (EOD)

EOD aims to generate high current income by investing at least 80% of its assets in above-average dividend paying securities and the remaining 20% in high-yield bonds. It also  invests in derivatives, particularly call options. The fund had a 9.19% distribution rate  as of Friday, while its 30-day distribution SEC yield (as of May 6) was  2.44%. There have been 217 mentions of EOD on the WSB chatroom since last week.

EOD’s assets as of May 7, 2021 were $264.64 million. Its major holdings include Microsoft Corporation (MSFT), Apple, Inc. (AAPL) and JPMorgan & Chase Co. (JPM). The fund’s total assets stood at $286 million as of December 31, 2020. Approximately 16.6% of EOD’s total assets are leveraged. It had a 112.4% portfolio turnover as of December 31. It is currently trading at an 8.4% discount to its net asset value.

EOD pays $0.53 in dividends annually, yielding 9.52% on its current price. Its four-year average dividend yield is 11.42%. The fund distributed dividends on a quarterly basis. EOD has gained 35.9% over the past year, and 15.5% year-to-date.

BTT shares were trading at $25.99 per share on Monday morning, down $0.00 (0.00%). Year-to-date, BTT has gained 2.19%, versus a 13.12% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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