The Flip Side of Rising Interest Rates... Much Higher Yields

Here are links to two recent posts about rising yields on Closed End Income Funds (CEFs):

What is Wall Street's Deepest, Darkest Secret http://kiawahgolfinvestmentseminars.net/Inv/index.cfm/19576

Wall Street's Even Dirtier Little Secret http://kiawahgolfinvestmentseminars.net/Inv/index.cfm/19577

As you know, the prices of CEFs fall when interest rates are expected to rise, so that the market price reflects anticipated higher rates. After rising in 2015 through April, CEF prices have fallen thus far in May...

If higher rates become reality, CEF managers will be able to reinvest in higher yielding securities for the first time since the financial crisis. This may eventually prop up CEF prices and should eventually lead to higher cash dividends.

Wall Street hates higher interest rates for two reasons:

(1) higher yields in the bond market make income investing more competitive with stock market growth expectations... causing more investors to opt for "the lower risk of actually losing capital" fixed income market place.

Note that Wall Street (and the DOL) have (purposely?) kept the investing public uninformed about the totally reasonable yields currently (and historically, before, during, and since the financial crisis) available using Closed End Income Funds.

(2) Mutual Fund Managers and ETF "passivists" do not own "easy-to-buy-more-of" Closed End Funds so they can't add to existing positions to take advantage of lower prices. AND, if interest rates rise to any semblance of normal levels, lower equity fund and ETF prices could produce panic selling in the equity markets. 

So in both stock market unfriendly scenarios, CEF income investors have the ability to add to positions when prices fall (thus reducing cost basis and increasing yield), AND, as CEF prices stabilize and return to normal levels relative to yield, they are the ones whose shares just might rise to profit-taking levels while the stock market is still treading water... as they did in 2012, for example.

   And by the way, MCIM portfolios (taking profits as they do in stock market rallies) have plenty of cash on hand for equity bargain hunting during corrections... balanced portfolios are typically better prepared for opportunities in both directions and in both classes of securities.  

Please feel free to contact me if you have any questions... and think about taking advantage of higher yields on income CEFs.