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“The achievements of an organization are the results of the combined effort of each individual.”

— Vince Lombardi

 

 

 
 
 
 

By Keith Lanton

September 10, 2015 at 11:25 AM EDT

Some leveraged Closed-end Funds are currently paying distribution rates as high as 10%.

Melville, NY -- (ReleaseWire) -- 09/10/2015 -- Hate to haggle for a bargain? You're not alone. So, imagine your excitement at having the opportunity to shop at a store where most prices are meaningfully discounted from where they were just a few weeks ago. Now, picture that a kind stranger just handed you a coupon to take an additional discount off the already reduced prices.

And, it gets better…many of the items available for purchase are hard to find sought after items.

This is not fiction. Welcome to the world of Closed-end Funds [CEFs] where this type of opportunity truly exists today. This is due to the fact that many CEFs invest in securities that have sold off sharply. Currently, investors can find some of the best opportunities CEFs that invest in corporate bonds, dividend paying stocks and emerging market bonds.

A Closed-end Fund, like a mutual fund, is a professionally managed portfolio of securities. However, unlike a traditional open-end mutual fund, a CEF issues and maintains throughout its life a fixed number of shares, rather than continually creating and redeeming shares at Net Asset Value (NAV)—the fund's market value established at the end of each daily trading session. In addition, a CEF trades in the open market just like a stock and consequently, its market value is a direct function of the supply and demand for its shares. This means that a particular CEF can often be purchased at price that is above (premium) or below (discount) its real value (NAV). So, an investor can buy a CEF for $15, and thereby obtain part ownership in a portfolio of stocks and/or bonds with a current market value of $16.

The first closed-end fund was launched in 1893 and today there are about 600 CEFs traded on US Exchanges. Retail investors own approximately 80% of their shares. These investors tend to move in and out of the market at the same time. This herd like, buy high and sell low, behavior creates potential opportunities for patient investors.

Bryn Torkelson, President and CIO of Matisse Funds—a mutual fund that invests exclusively in discounted CEFs—explains, "When discounts approach the level we see today, history teaches us and our research validates that it is a good time to invest in CEFs." The research conducted by his firm, which analyzed more than a quarter of a century of data, demonstrates that historically when CEFs discounts have exceeded 8%--as it is the case today—during the ensuing 12-month, the average CEF generated returns of +18.5%, while CEFs with the widest discount to NAV—representing nearly 25% of the CEF universe—appreciated 26.1%. Undoubtedly, an attractive bargain, when compared to the S&P 500 +1.3% return for the same period. Incidentally, discounts above 8% have happened only less than 10% of the times over the past 25 years.

Currently, CEFs trade on average at a 9.90% discount to their NAV. This wide discount enhances the yield on income producing CEFs. As a matter of fact, some leveraged CEFs are paying distribution rates as high as 10%. While leverage increases risk, it may also increase returns.

Consequently, receiving a high cash flow often contributes to tame the overall investment risk. After all, those investors who are fortunate enough to receive a 10% cash flow for 5 years, even if faced with a 25% drop in the price of their investment would in the end capture an overall 25% return. Of course, there are no guarantees when investing. However, astute investors can leverage the current CEF bargains to tilt the odds in their favor.

About Lantern Investments, Inc.
Based in Melville, NY, Lantern Investments, Inc. is a wealth management firm that educates and guides multi-generational clients to achieve their financial goals by managing risk, growing assets and preserving wealth. The firm has offices in Westbury, NY, Chicago, IL, Houston, TX, San Francisco, CA and Hoboken, NJ. For more information call (631) 454-2000 or visit http://www.lanternwealth.com

About Keith Lanton
Keith Lanton is the President of Lantern Investments. He works with clients to develop optimal asset allocations and investment portfolios that factor in the clients risk profile and income needs. He has appeared on financial radio shows, been quoted in newspapers and industry publications and also served on numerous investment panels and forums. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
 
 

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Company Info

35 Pinelawn Rd., Suite 101E
Melville, NY 11747
631.454.2000

805 Third Avenue
18th Floor
New York, New York 10022
212.371.3950

Our Disclosure

Wealth Advisory solutions provided by subsidiaries of Percheron Asset Management Group, Inc.: Herold Advisors Inc. and Lantern Wealth Advisors, LLC., SEC registered investment advisors. Securities offered through Herold & Lantern Investments Inc., a registered broker dealer, Member FINRA, MSRB, SIPC.

Bernard Herold & Co., Inc.
Rule 606(a)1 Reporting Public Disclosure

 

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Welcome!

Welcome to Herold & Lantern Investments, Inc., and our new web site! We invite you to take a look around.

Bernard Herold & Co., Inc., and Lantern Investments, Inc., both family-owned firms with decades of experience, have merged to become Herold & Lantern Investments, Inc.  What that means to our existing clients is simple: stabilityand opportunity.  Clients keep their account numbers, and the same talented professionals will continue to serve them. Plus, with significantly enhanced and technology driven capabilities, our already excellent level of customer service will be even better. Read more about the merger.

As you navigate the site you will see the scope and range of our services. We hope you will get to know more about the firm, and its leadership. One thing you can be assured of is that we remain committed to responsiveness. Clients can always reach their investment professionals, or either of us, directly.

If you are an investment professional interested in learning more about our firm, our plans for growth, and the opportunities we offer, let us hear from you. Your passion for financial services, and sincere desire to help your clients reach their goals, means that we should talk.

We have many people to thank for helping us reach this new milestone, but our success has, and always will, come from the trust our clients put in us – a trust we strive to earn every day.

 

With sincere appreciation,

 

Keith lanton
President

Larry Herold
Chief Operating Officer