7 ETFs and Closed-End Funds Yielding Over 10%

Most traditional investors love dividends. After all, over half of all total returns through time have been traced back to dividends. Some investors will go to any length possible to get a higher yield than they can find in Treasuries, blue chip stocks, corporate bonds and traditional municipal bonds. Despite a low interest rate environment, some investors still can actually manage to get yields of 10% or more.

24/7 Wall St. has decided to track seven funds, all either closed-end funds or exchange-traded funds (ETFs), that offer yields of 10% or more. Mutual funds and ETFs are supposed to be safer than individual securities because they diversify their investments much wider than most investors can accomplish. Beware: “supposed to be” and “are” simply do not always match up. These funds are far from safe and many of the yields may simply not hold up or be predictable through time.

Most investors should do hours of research on any one of these before they are willing to commit their assets into them. If the five-year Treasury yield is close to 1.4%, and if the 10-year Treasury yield is still under 2.0%, what does it tell you if a fund is paying a yield of 10% or more? The simple answer is that it is taking a lot more risk. To accomplish this, it might even be taking risk on top of risk due to leverage and derivatives.

Some of these have incredibly high net expense ratios after high management fees and expenses, and many invest in derivatives on top of individual securities. Some of the closed-end funds and ETFs featured here do employ high degrees of leverage and use derivatives, so the risk is more than just a generality.

As you would expect, there are likely no Treasury bonds invested in to speak of. These funds are targeting strategies around high-yield (junk) bonds, master limited partnerships (MLPs), emerging markets, common stocks, options, preferreds and a whole host of other asset classes. Some of these assets will be close to impossible to track, and even the ETFs and closed-ends funds may have tracking errors. These variables and market conditions can allow these to sometimes trade at significant premiums or discounts to net asset value. Again, there is also no assurance whatsoever that these funds will be able to maintain their high dividend payouts.

If investors have any risk aversion at all, they need to be looking elsewhere. When ETFs and closed-end funds can trade at massive premiums or discounts, and when they have tracking error or invest in derivatives that are hard to value (and explain), they just are not suitable for most investors. That being said, there are billions of dollars worth of securities represented here from just these seven funds. There are of course other closed-end funds and ETFs that have yields north of 10%, but many have irregular dividends that are next to impossible to predict through time.

PIMCO High Income Fund

PIMCO High Income Fund (NYSE: PHK) is a rather well-known closed-end fund from PIMCO. It pays a $0.103 monthly payout, but that is lower than the $0.122 normal payout that had been seen from 2003 to 2015. Even the lower payout generates a yield of 13.1%, based on a $9.43 share price.

PIMCO’s High Income Fund had about $820 million in assets. The fund focuses on high current income and normally invests at least 80% of its net assets in speculative grade (junk) debt securities. Due to leverage and due to a tracking issue over the net asset value, this fund trades at a premium north of 40% to its net asset value. Also it has a 52-week trading range of $6.87 to $11.70.

Stone Harbor Emerging Markets Income Fund

Stone Harbor Emerging Markets Income Fund (NYSE: EDF) is an emerging market debt closed-end fund with assets of $232 million. It has a $0.18 dividend per month, generating a yield of 15.6% based on a $13.84 share price. This emerging market ETF has had the same $0.18 monthly payout since its 2011 inception.

Stone Harbor’s fund seeks total return gains from income and capital gains, and it invests at least 80% of its net assets in emerging markets fixed income securities and other instruments, including derivatives. The turnover is high at 89%, and its leverage is about 31%, plus the expense ratio is over 2%. The 52-week week trading range is $9.95 to $17.09.

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