Michael Foster

One of the best things about high-yielding closed-end funds (CEFs) is that they can post big gains and be strong bargains at the same time.

The stunning thing about this year’s stock-market rally is that much of it has come in just the last couple of months.

Closed-End Funds (CEFs) offer a strong path to financial independence through high dividends, often yielding over 8% by converting portfolio gains into income. The Liberty All-Star Equity Fund (USA) exemplifies a successful CEF, boasting a 10.4% yield and 11.7% annualized returns over a decade. USA effectively distributes its returns as dividends, tied to its NAV performance, and currently trades at an attractive 12.5% discount. In contrast, Pershing Square USA (PSUS), managed by Bill Ackman, is an example to avoid. Despite its celebrity manager, PSUS has dramatically underperformed the S&P 500 since its April launch, down 24%, and notably lacks a dividend. Its large size and poor NAV performance, coupled with a significant 22.7% discount, make it a flawed investment.

This Iran deal adds one more tailwind to our (already surging) 8%+ paying closed-end funds (CEFs). Let me show you why, including one great example.

ASA Gold & Precious Metals Limited, a closed-end fund primarily invested in physical gold, was 2025's top-performing CEF, benefiting from gold's surge amid inflation and geopolitical fears. However, 2026 sees ASA and gold prices flat despite ongoing global uncertainties, suggesting previous instability was already priced in. The fund offers a meager 0.14% dividend yield, atypical for CEFs. While ASA trades at a 13.9% discount to its net asset value, this is near its five-year average, making it less of a bargain. Furthermore, recent internal turmoil, including COO Axel Merk's resignation citing governance concerns, casts a shadow. Merk alleged exclusion from board meetings and lack of transition plans for key management, claims ASA disputes. This internal conflict could lead to a wider discount, further impacting the fund's market price. Investors are advised to avoid ASA, as its future performance appears hampered by both gold's current stagnation and management issues.

Every now and then, something happens that shines a light on the value of our favorite income investments (CEFs!).

This article advocates for leveraging AI's indirect growth through high-dividend Closed-End Funds (CEFs) to navigate a pricey and potentially choppy market. While AI spending is poised for significant expansion, the S&P 500's high valuation makes diversified income streams attractive. Three CEFs are spotlighted: PIMCO Dynamic Income Strategy Fund (PDX), a bond CEF yielding 7.7% with a 10.6% discount, offering stability. Next, the Neuberger Berman Real Estate Securities Income Fund (NRO), a REIT CEF yielding 12.3% with an 8.4% discount, benefits from AI-driven demand in data centers and logistics. Finally, the John Hancock Financial Opportunities Fund (BTO), focusing on regional banks, yields 6.6% and trades at an unusual 3.1% discount, despite a history of strong performance. These funds provide substantial income and diversification beyond direct tech exposure.

The Sprott Focus Trust (FUND), a closed-end fund managed by Whitney George, presents a compelling investment opportunity with a 6% dividend yield and a current 10% discount to its net asset value. George, renowned for his focus on energy and small-cap stocks, has crafted a portfolio featuring a blend of major companies like ExxonMobil and smaller, domestically-focused firms. This strategic allocation has enabled FUND to consistently outperform the small-cap benchmark and demonstrate resilience during market downturns, such as the pandemic's oil price collapse. The fund's rising NAV and a mandate to pay 6% of its rolling average NAV, supported by a robust 14.4% annualized NAV return, indicate strong dividend sustainability and potential for increased payouts, including special distributions. With its discount slowly narrowing, FUND offers investors a chance for both income and capital appreciation.

America's economy is experiencing a quiet boom, marked by consistent, long-term wealth growth despite widespread negative sentiment. Over the past century, each generation has earned more, inflation-adjusted, than the last. Disposable income per worker has doubled in 40 years to over $11,000 annually, and the jobless rate remains low at 4.2%. However, consumer sentiment lags, possibly due to higher inflation expectations and pandemic-era financial memories. To capitalize on this underlying strength, the Liberty All-Star Equity Fund (USA) is recommended. This closed-end fund invests in top US companies like NVIDIA and Microsoft, offering an 11.6% dividend. The fund has shown strong performance over a decade, yet currently trades at a significant 12.9% discount to its net asset value, presenting a potential opportunity for investors seeking income and growth from America's enduring economic expansion.

The traditional "sell in May" investment strategy is questioned, especially for long-term dividend investors. Despite initial worries about an AI bubble and the Iran conflict, markets saw an April rally after AI concerns eased and oil prices fell, though they've flatlined since mid-May. Technology stocks, represented by VGT, soared before cooling but remain resilient. This market pause presents a unique buying opportunity in the Columbia Seligman Premium Technology Growth (STK) closed-end fund. STK's discount to net asset value has widened to 7.9%, its cheapest in over a decade, driven by recent tech volatility. The fund also offers a 3.7% dividend, with a history of special payouts and strong long-term performance, outperforming both the S&P 500 and VGT. This makes STK an attractive option regardless of the month.