This Stock Is Yielding Over Double the Inflation Rate Right Now

Shah Gilani|September 25, 2023

“Higher for Longer” – a lot longer! That was the takeaway from last week’s FOMC notes when Federal Reserve officials forecasted that higher interest rates could be with us through 2026. This caught many investors by surprise because the hope was that we might see rates come down sometime in 2024.

I’m not convinced the Fed can keep rates high through the end of 2026 without breaking something in the economy, as I mentioned last week.

Regardless, in the here and now, inflation is still above 4.0%, which means it’s still important to focus on income-producing investments for your portfolio.

As always, one of my favorite methods for generating income is through closed-end funds (CEFs).

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. These 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). This 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.

This week I’m watching Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund (ETW), a closed-end fund that invests in a diversified portfolio of common stocks and writes call options on one or more U.S. and foreign indices on a substantial portion of the value of its common stock portfolio to seek to generate current earnings from the option premiums.

The fund’s portfolio comprises 287 equity holdings with household names such as Apple Inc. (AAPL), Microsoft Corporation (MSFT), Amazon.com Inc. (AMZN), LVMH Moët Hennessy Louis Vuitton SE (LVMUY), and Nestlé SA (NSRGY), rounding out the top five positions with weightings of 6.41%, 5.61%, 3.09%, 2.29%, and 2.20%, respectively.

As of Q2 2023, 96% of the stock portfolio (based on total net assets) has call options written, with an average of 16 days until expiration and strike prices that are, on average, 0.30% out-of-the-money.

At the current price, BCAT is not only trading at a significant -10.8% discount to its NAV, but it also delivers a healthy 9.09% yield. This is more than double the rate of inflation and nearly double what you can get in most high-yielding money market accounts.

Markets are shaky, so be extra careful out there and keep an eye out for more opportunities later in the week.