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When it comes to high-yield closed-end funds (CEFs), I’m a big fan of the “three Ds” — discounts, diversification, and dividends, asserts Michael Foster, investment strategist at Contrarian Outlook.

These days, a “3-D” portfolio is a snap to put together, with CEF dividends at multi-year highs and oversold discounts everywhere across the asset class.

Below, we’ll look at a three-fund, bargain-priced “3-D” CEF portfolio you can buy today. It yields 8% now and gives you the diversification you need to reduce your volatility—and collect your payouts in peace.

An Oversold Global Titan

BlackRock Enhanced Dividend Trust (BGY) has been a favorite of mine for years, largely because of its management team. BlackRock isn’t just a big Wall Street institution, it’s the biggest money manager in the world.

It’s hard to get your head around the amount of cash the company administers; its $10 trillion in assets equates to half of America’s annual GDP and a tenth of the entire planet’s GDP. BlackRock is so big that it has access to talent and research resources that individual investors can only dream of.

That’s important for a fund like BGY, which holds companies in Europe, Asia, Latin America, and the US. With overseas stocks like AstraZeneca (AZN), Sanofi (SNY), Diageo (DEO), and Taiwan Semiconductor (TSM) among its top holdings, BGY gives you exposure to a variety of assets that aren’t always easy for Americans to buy.

It then turns profits from these holdings into dividends that have remained steady for four years—right through the pandemic (and now rising-rate) panics.

The kicker? BGY trades at a 10% discount to net asset value (NAV, or the value of its portfolio), much lower than its long-term average. Get BGY now, collect the income, and wait for the discount to shrink for more gains as investors realize how oversold this well-managed and diversified fund is.

A “One-Stop” Real Estate Fund Yielding 7%

I have written glowingly about the real estate–focused Cohen & Steers Quality Income Realty Fund (RQI) numerous times in the past — and now is another time to buy the 7%-yielding fund, thanks to the market’s wide selloff of real estate, which took down quality assets that still hold tremendous rental-income potential.

RQI’s biggest holdings are some of the most lucrative real estate properties out there — American Tower Corp. (AMT), which profits from our strengthening cell phone addiction, and self-storage REIT Public Storage (PSA), which profits during boom times (when consumers buy more stuff and need somewhere to store it) and recessions (when people downsize — and need to store their stuff).

Meantime, RQI has wisely snapped up shares of warehousing and logistics–focused Prologis (PLD), which will continue to benefit from the long-term growth of e-commerce. There’s no reason why these firms should be oversold, but they are, which makes RQI more than worthy of your attention now.

These holdings, and the fund’s 183 other investments, get you tremendous diversification, not just among a bunch of firms, but also the many thousands of different real estate holdings those companies own, making RQI about as robust as it can be.

Beat the Energy Panic With GUTs

Soaring energy prices have made some investors skittish about utilities, many of which use pricier commodities — mainly natural gas — to generate power. But keep in mind that utilities have almost broken even in 2022, at a time when the market keeps flirting with bear territory. But we can do much better than XLU with a CEF called the Gabelli Utilities Trust (GUT).

Not only has GUT consistently chosen winning utilities for over 20 years now, but its 8.2% dividend yield is extremely compelling.

Plus, GUT has spread its investments around, with over 200 holdings from a variety of utility firms, including NextEra Energy (NEE) and Duke Energy Corp. (DUK), as well as some exposure to the oil and gas production through companies that run utilities and produce these commodities, like National Fuel Gas Co. (NFG).

Put these three CEFs together and you’ve got a portfolio spanning the globe, covering America’s premier real estate properties and including the utilities that make America hum. These firms aren’t going anywhere — even if they’ve been oversold by a panicky market.

About the Author

Michael Foster, PhD, has worked as an equity analyst for a decade, focusing on fundamental analysis of businesses and portfolio allocation strategies. Dr. Foster's reports are widely read by analysts and portfolio managers at some of the largest hedge funds and investment banks in the world, with trillions of dollars in assets under management. He received his PhD in 2008, and he continues to offer consulting services to institutional investors and ultra-high-net-worth individuals.

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