Most investors have heard of mutual funds and exchange-traded funds. The lesser-known cousin is the closed-end fund (CEF).
CEFs are actively managed by a fund manager as the main difference from ETFs. The main drawback is that fees are generally higher for CEFs over ETFs. But the major advantage is that there is a higher potential return.
When you invest in a CEF, the fund purchases the equity or commodity that the fund represents. In some cases, options are sold against the asset to increase average returns to 8 to 10% annually.
When combined with dividend-generating equities, it can be even higher.
Columbia Seligman Premium Technology Growth Fund (STK)
Columbia Seligman Premium Technology Growth Fund (STK) holds large, reliable companies such as Apple (AAPL) and Teradyne (TER). The focus of the fund’s management is on well-established, long-term growth prospects.
It also sells covered calls to hedge risk and generate income. At the time of this writing, STK trades at a 2% discount to NAV. It pays a dividend yield of 7.24% with an expense ratio of 1.15%. The fund provides an excellent entry point if you are looking to buy tech assets.
If you want exposure to the tech sector but prefer a more conservative portfolio, STK might be one of the best CEFs for your consideration.
Special Opportunities Fund (SPE)
Special Opportunities Fund (SPE) is a little more speculative by providing exposure to other CEFs and Special Purpose Acquisition Companies (SPAC). SPACs have been around for decades and are formed to raise capital through IPOs.
The popularity of these entities has increased over the last couple of years. More than 50 have been formed by the end of 2020.
The fund trades at a 5.08% discount to NAV and a dividend yield of 7.80% with an expense ratio of 1.92%.
SPE holds 33.75% of its investments in SPACs and gives the average investor an opportunity to invest without having to manage each SPAC individually.