Selling covered calls is generally not the optimum strategy when stocks are ripping higher. Nevertheless, the Madison Covered Call & Equity Strategy Fund is still a smart option in the current rally, said John Cole Scott, principal at Closed-End Fund Advisors. “It has a much lower beta than the other closed-end funds (CEF) in the sector at around 0.5,” said Scott. “So independent of the market it’s less reactive should things go higher.” Scott also likes the CEF’s 9% discount to its net asset value (NAV) and its 9% yield. CEFs generally do not continuously offer their shares for sale. Rather, they sell a fixed number of shares at one time in an initial public offering, after which the shares typically trade on a secondary market. The price of closed-end fund shares that trade on a secondary market after their initial public offering is determined by the market and may be greater or less than the shares’ net asset value. Scott is bullish on the BlackRock Multi-Sector Income Trust , which also trades at a 9% discount to its NAV. The BIT offers investors about an 8% yield and since it is a bond CEF it has a very low beta of .2. Staying with fixed income CEFs, Scott is positive on the Invesco Dynamic Credit Opportunities Fund , which trades at a 12% discount and also pays an 8% dividend. Scott said the VTA focuses on senior loans. “When rates rise you should see good upside performance and increased yield over time,” said Scott. Finally, Scott is a fan of Capitala Finance , saying the business development company’s (BDC) low beta of 0.5 stacks up favorably against competitors. “If you want to venture in to a more focused portfolio and don’t need as much first lien, it offers a great access point, again with some discount, some yield and some good NAV.”
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