This Income Play Is a Perfect Hedge Against Volatile Markets

Shah Gilani|August 14, 2023

With markets drifting lower over the past two weeks, it’s more important than ever to have income-producing stocks in your portfolio to help offset volatility. There are several ways to hold income stocks in your portfolio. You can buy individual stocks, exchange-traded funds, or mutual funds with a focus on income, but one of my favorite options are closed end funds, or CEFs for short.

If you’re not familiar with CEFs, they are a type of mutual fund that issues a fixed number of shares through a single initial public offering (IPO) to raise capital for its initial investments. Its shares can then be bought and sold on a stock exchange but no new shares will be created and no new money will flow into the fund.

Because the fund’s market value can move just like an individual stock, it can rise and fall above and below net asset values (NAV), which means there are times when you can purchase shares of a CEF at an actual discount to the NAV.

Factor in high yielding income with the ability to purchase shares of CEFs at a discount to their NAV, and CEFs can be a great choice for investors looking for a professionally managed income producing portfolio.

With that said, this week I want to draw your attention to BlackRock Utilities, Infrastructure & Power Opportunities Trust (BUI), a closed-end fund that invests primarily in equity securities issued by companies in the Utilities, Infrastructure, and Power Opportunities sectors and invests both in the United States and globally.

In addition to the stocks BUI holds in its portfolio, this CEF also writes (sells) options to generate additional income.

In the context of BUI, the fund considers ‘Utilities’ to include products, technologies & services connected to the management, ownership, operation, construction, development or financing of facilities used to generate, transmit or distribute electricity, water, natural resources or telecommunications.

Its ‘Infrastructure’ holdings include companies that own or operate infrastructure assets or involved in development, construction, distribution or financing of infrastructure assets. And its “Power Opportunities” includes companies with significant exposure to renewable energy technology, alternative fuels, energy efficiency, automotive technologies that enable or support the growth & adoption of new power and energy sources.

The fund currently has 57 holdings in the portfolio, with NextEra Energy, Enel SPA, RWE AG, Vinci SA and Williams Companies Inc, rounding out the top five positions with weightings of 7.8%, 4.62%,4.07%,3.36% and 3.06%, respectively.

Geographically, the United States represents 58.18% of the portfolio, with France, Italy, Germany, and Portugal rounding out the top five with weightings of 7.04%, 5.40%, 5.2% 3.48%, respectively.

At current prices, the fund trades at a respectable 0.18% discount to net asset value, so it’s very fairly priced, and it yields a competitive 6.5%. It’s definitely worth picking up.

One of the reasons I’m interested in energy right now, especially energy infrastructure, is because it’s a market that could see a rush of demand thanks to the proliferation of AI-driven technologies. The next generation of AI is going to be a million times smarter than current models, and we’re much closer than anyone realizes to its release – these new AIs could be here in as little as 90 days from now.

And when these “artificial superintelligences” arrive, it’s going to create some massive upheaval. Financial markets could potentially be upended, and two-thirds of the current job market could be rendered obsolete. A handful of stocks in sectors crucial to AI’s future are likely to skyrocket – and I’m not talking about the big names like Microsoft or Google.

I’ve got a full briefing ready to make sure you know how to survive and thrive when these new AIs go online, and exactly where to invest to capitalize on this trend before it takes off. Everything you need is at this link.