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PSP Yields 8.00% And Outperforms The S&P, But What Are The Risks?

Summary This Global Listed Private Equity Portfolio is under the radar with little institutional ownership. With an easy to analyze portfolio of 64 holdings we are slightly surprised by the lack of “buzz”. We analyze this attractive performing ETF, notice a similarity with MLPs that outperform when rates rise, and provide our recommendation. The PowerShares Global Listed Private Equity Portfolio ETF (NYSEARCA: PSP ), is a well established fund, (inception 10/24/2006) with an attractive track record. It had a serious correction during the financial crises but has weathered the storm and come back significantly, similar to the holdings of the underlying components. The ETF is based upon an index called the Red Rocks Global Listed Private Equity Index. Red Rocks Capital is an asset management firm based in Golden, Colorado. Red Rocks specializes in listed private equity securities. They are owned by ALPS, a mutual fund and asset servicing and gathering firm based in Denver, Co. They are in turn a wholly owned subsidiary of DST Systems (NYSE: DST ), a software development firm based in Kansas City, Missouri. The ETF presently has 64 holdings while the index with a ticker symbol of {GLPEXUTR} has anywhere from 62-70 or an unknown number of holdings. We will explain why shortly. According to the sponsor PowerShares: The PowerShares Global Listed Private Equity Portfolio is based on the Red Rocks Global Listed Private Equity Index. The Fund will normally invest at least 90% of its total assets in securities, which may include American depository receipts and global depository receipts, that comprise the Index. The Index includes securities, ADRs and GDRs of 40 to 75 private equity companies, including business development companies BDCS, master limited partnerships MLPS and other vehicles whose principal business is to invest in, lend capital to or provide services to privately held companies (collectively, listed private equity companies). The Fund and the Index are rebalanced and reconstituted quarterly. The market cap and style allocations are interesting but not terribly relevant. For information purposes here are the allocations, courtesy of the fund sponsor, Invesco: PSP Market Cap & Style Allocations Classifications Weight Small-Cap = 27.49% Growth 2.44% Blend 3.28% Value 21.77% Mid-Cap = 56.70% Growth 27.60% Blend 16.78% Value 12.32% Large-Cap = 15.81% Growth 8.13% Blend 7.03% Value 0.65% There are no great surprises here as we expected that most of the constituents to this ETF would be solidly in a mid-cap structure. The general nature of most BDCs, MLPs and private equity firms for both tax and overall structure are neither extremely large, nor small. As a comparison, Morningstar breaks the allocation down slightly more: Micro-cap: 13.41%, Small-Cap: 14.08%, Medium-Cap: 56.70%, Large: 8.78%, and Giant: 7.03%. Obviously, they use a slightly different nomenclature and breakdown, but both Morningstar and the fund sponsor do concur exactly on the category of Medium or Mid-Cap. In terms of the style overall it is categorically a blend style with XTF.com breaking it down as follows: Blend, 81.10%, Growth, 9.50%, Value 6.50% and Pure Growth at 2.70% As this is a global fund, it is important to analyze the country and currency allocations of the holdings. PSP Country and Currency Allocations Country Weight Currency Weight United States 40.06% United States Dollar 40.06% United Kingdom 15.21% Euro 16.00% France 7.13% British Pound 15.21% Canada 6.02% Canadian Dollar 6.02% Switzerland 5.66% Swiss Franc 5.66% China 5.63% China Renminbi 5.63% South Africa 4.28% South Africa Rand 4.28% Belgium 3.95% NA NA Germany 3.28% NA NA Sweden 3.15% Swedish Krona 3.15% Japan 2.46% Japan Yen 2.46% Denmark 1.03% Danish Krone 1.03% Malta 1.64% NA NA Hong Kong 0.50% Hong Kong Dollar 0.50% As a global ETF this would be considered well balanced geographically with approximately 46.00% in North America and approximately 41% in the Europe. Geographically, the holdings shifted slightly from the last quarter, with a small percentage of assets moving to South Africa out of Malta. In terms of currency exposure, we don’t see the as a major influence on this ETF with the slight exception of weakness in China and continued weakness in the euro. In any event, the ETF is priced in dollars and the exposure, though unhedged, is fairly balanced. The U.S. dollar as the underlying currency at 40% and the other currencies make up an interesting mix overall. Any further concern is not directed at the currencies in this ETF, though it would be prudent of course to follow the euro based holdings and the small exposure to China. Our sector allocation of this ETF is related to the overall nature of private equity firms in general. For informational purposes here is the sector allocation: PSP Sector Allocations Sector Weight Financials 74.64% Derivatives 8.80% Industrials 8.27% Information Technology 4.89% Health Care 1.18% Investment Companies 1.11% Consumer Staples 1.03% Energy 0.08% The majority of the BDCs, MLPs, and private equity firms would be classified within the Financial Sector. Although a little difficult and subject to error, an analysis of the underlying industries is informative when we analyze a private equity firm and it components. In terms of PSP, it does shed light on the business nature of the holdings. PSP Industry Allocations Industry Exposure Weight Consumer Finance 59.70% Financial Services 22.70% Internet & Mobile Applications 4.70% Heavy Machinery 3.90% Steel 3.30% Other 2.20% Packaged Food Products 1.20% Health Care Providers & Services 0.90% Energy Equipment & Services 0.70% Investment Companies 0.60% This industry breakdown is courtesy of xtf.com and is subject to revision. As noted, many of the private equity, BDCs and MLPs within this ETF are focused on providing financing for other businesses and industries yet the underlying holdings can focus on specific industries as well. Investors who have never invested in these companies or analyzed these holdings may require a “learning curve” to understand how the firms are structured and the benefit of their overall tax structure. There is also history on their side, if and when, rates do increase. We will explain that shortly. Before doing so we will as usual analyze the top 15 components. For information purposes here are the top 15 components, their symbol, sector, ratings, (if any) and their weightings: PSP top 15 components Name/Symbol Sector Ratings (Moody’s/S&P) Weight Partners Group Holding AG ( OTCPK:PGPHF ) Financials NR/NR 5.661% 3i Group PLC ( OTCPK:TGOPY ) Financials NR/BBB 5.422% Onex Corp ( OTCPK:ONEXF ) Financials NR/NR 5.363% Fosun International Ltd ( OTCPK:FOSUY ) Industrials Ba3/BB 5.130% Citi KKR & Co, TRS 10/31/13/NA Derivatives NA/NA 4.505% Citi Blackstone TRS 10/31/13 Asset LG/NA Derivatives NA/NA 4.293% Eurazeo SA ( OTC:EUZOF ) Financials NR/NR 3.693% Brait SE/{BAT.J} Financials NR/NR 3.606% Leucadia National Corp (NYSE: LUK ) Financials Ba1/BBB- 3.287% Melrose Industries PLC ( OTC:MLSPY ) Industrials NR/NR 3.140% IAC/InterActive Corp (NASDAQ: IACI ) Information Technology Ba2/BB 2.981% Ares Capital Corp (NASDAQ: ARCC ) Financials Ba1/BBB 2.967% Ackermans & van Haaren NV ( OTCPK:AVHNY ) Financials NR/NR 2.924% Wendel SA ( OTCPK:WNDLF ) Financials NR/BBB- 2.914% Jafco Co Ltd ( OTC:JAFCY ) Financials NR/NR 2.461% Our top 15 holdings represent 58.347% of the ETF, while the balance of 49 holdings represent 41.653%. This is quite a top heavy ETF with 8.798%, (or 15.078% of the top 15) of the ETF in combined total return swaps that originated with Citi (NYSE: C ) and KKR (NYSE: KKR ) and Citi and Blackstone (NYSE: BX ). Basically, these swaps allow the ETF fund managers to utilize capital more effectively. A little tutorial on TRS is necessary. These swaps allow the ETF and its fund shareholders to receive a total return and gain exposure and benefit in the sector without actually having ownership. Income is also generated from the swap as well as appreciation of the asset over the life of the swap. A set rate is paid for the swap and if the asset does fall over the swap’s lifespan, the total return receiver or counterparty will be required to pay the asset owner the amount by which the asset has fallen in price. These Citi/KKR and Citi/Blackstone TRS are considered unrated derivative contracts. In terms of the company names, most of the names are only slightly “household names,” but fairly well known in professional investment circles. Many of the companies would be considered “holding companies,” due to their structures by ratings agencies in spite of the fact they would be classified as PE funds and BDCs. One of the top ten is Brait SE, whose name is derived from an uncut diamond. It is a Luxembourg and Johannesburg Exchange listed large South Africa based PE fund with no U.S. symbol whatsoever. Many of the companies in the index are listed on the “Pink sheets.” The primary reason is there are limited financial disclosures and reporting requirements. Yet the public vehicle is useful for both compensation plans and for retail participation in the sector, as long as proper risk disclosures occur. In our past analysis of ETFs we always provided the weighting of the index constituents. The purpose is to discern any discrepancies or variances in the current market between the index and the fund. This is also known of course by the term “tracking error.” Usually we can at least provide somewhat up to date information. BarCap, S&P, MS, and even small providers were more than happy to share their index composition with readers of Seeking Alpha. In this case, we were unsuccessful. One of the VP’s in Portfolio Strategy stated: I cannot provide any more information. There are some regulatory changes that are affecting how we report index information, so this has delayed the update of our fact sheet. There is an updated (9/30) fact sheet that is undergoing compliance review, but this may not be available for another 1-2 weeks. We are obviously slightly disheartened here. The only thing we can reference that pertains to what he is referring to was a new regulatory issue that pertains to shares in ETFs noted in a Reuters article and other investment publications. According to the article: ETFs are typically funds whose holdings are meant to mimic the performance of an index. To do that, the SEC has said the securities used to create shares in most funds must be the same ones as in the fund’s portfolio unless there was a change in the index the fund tracks. In any event, this seems more pertinent to Invesco than the index provider. We welcome SEC attorneys or fund practitioners to share further information. We felt his feedback was quite uncommon and obviously not transparent for an index provider. Overall, this is a little circumspect and disheartening. We like to inform the readers of any divergence or tracking errors from the index. In this case all we had to work with is data that “stale dated” from June information that basically shows the top ten holdings with no weightings whatsoever. Fortunately, the ETF fund information was up to date and an analysis for the top 15 holdings was possible. As noted, ratings on these issues are not prevalent and actually not pertinent. Only 14.59% from the top 15 or 25% have investment grade ratings. The reason is due to the structure of the firms in this ETF. Many of them do not have strong balance sheets. Some have substantial debt, including high yield paper. This does not endear or permit, in most cases an investment grade credit rating. In addition, many of these public firms see no need to apply for a rating as they basically borrow and lend and invest in the private markets using alternative sources of capital. In general, they have no use for credit ratings in their overall business model. By the way, the 16th holding is the well known Apollo global Management with 2.241%, and the Carlyle Group comes in at 22nd with 1.608% of the ETF. Overall, the benefit of the ETF holder is to participate in an alternative market that may be the place for stable cash flow and growth, if and when rates rise. We will explain this aspect shortly as we review the performance and key data of the ETF. PSP’s Performance, Fees and Recommendation Category PSP {ETF} GLPEXUTR {Index} Net Expense Ratio 2.09% NA Turnover Ratio 30.00% NA YTD Return 5.49% (10/31/15) 5.71% (10/31/15) 1-Year Total Return 6.42% (10/31/15) 7.97% (10/31/15) Distribution Yield/SEC Yield 8.04%/3.27%(11/18/15) 3.86%/NA (06/30/15) Beta,(3 year) Shares/Holdings (shares vs Morningstar Global Allocation TR USD) 1.66/1.1 NA/NA P/E Ratio FY1/current 13.93/12.65 (09/30/15) NA/NA Price/Book Ratio FY1/current 1.78/1.71 (09/30/15) NA/NA The fees here are basically standard in PE and BDCs ETFs. 1.45% of the 2.09% of the fees are the pro rated portion of the cumulative expenses that are charged by the underlying holdings. It is the usual large fees that are expected in this alternative sector. This is in spite of the fact that Fidelity uses a rather small number of 0.53% for the net expense ratio for the asset class median. The turnover ratio of 30% is also higher than the asset class median of 18.00%. We attribute this to changes in the ETF and the underlying index throughout the year. The YTD return is almost 2xs the S&P 500 return (2.65%) and exceeds the 12 month return as well (5.20%). The beta for the underlying is close to the benchmark and is attributed to the lack of volatility of the publicly traded shares and general long term nature of PE holdings. The biggest issue with this ETF is the distribution yield. The returns generated here are considered neither short term nor long term capital gains, but dividend income. If the PE funds in PSP, even though public listings, are structured as MLP’s (Master Limited Partnerships) this creates a tax issue. The funds themselves as a MLP have a tax incentive to distribute most nearly all their profits to their shareholders. This creates major tax issues for investors in MLPs. Fortunately, the majority of the firms in the ETF are structured under a holding company or owners of a MLP. This allows these profits to flow as dividend income and not as capital gains. We mentioned in the beginning why we are encouraged by market moves in these firms during a rate rise. Though the underlying companies are not, for the most part structured as MLPs they do tend to trade at times like them and investors due at times “bucket” them, BDC’s, and listed PE funds all together. This fund as we mentioned, only dates as to 2006, so we can not ascertain how it will do overall during a rate increase. We looked into the history of MLP’s and noticed an interesting article. Fortune Magazine’s, November 01, 2015, stated: They also find encouragement in recent history: The last time the Fed increased rates, between June 2004 and June 2006, the S&P MLP index rose 17%, beating the S&P 500’s 12% gain. Yes, we know this article is primarily on pipeline MLPs but does address MLPs in general. The main takeaway on this article is that the companies did not contract during an interest rate increase. It actually is logical. The underlying holdings are based upon companies that are either being restructured, turned around, purchased for resale, or merged with other entities. During periods of interest rate increases general aggregate demand increases. In general, the Fed Reserve and other central banks try to stay ahead of demand and inflation. Granted, this is a global PE ETF with 40.00% in the U.S., but in general the U.S. economy will globally lead the way forward. In the event of no interest rates due to a myriad of reasons, we expect this ETF to continue to perform and return an above market return to investors. Overall, we are extremely bullish on the sector and this ETF and recommend a buy as an alternative investment. We are encouraged by the growth of the underlying holdings within the fund constituents. It is one of the few vehicles in the market where both institutions and individuals can invest in a PE or BDC fund, albeit in an indirect way. The ETF closed at $10.88 per share on November 19. Its year high was $12.41, set on June 03 and its year low of $9.01 was on August 24. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Project $1M: Achieving A $1M Portfolio With Growth Stocks Pt. 3

Summary I’ve created Project $1M to try and attain a $1M capital base from growth stocks in 11 years. I’m focused on including stocks that have a moat and some strong growth drivers. I will introduce the final set of stocks in this update. I previously introduced the concept of my growth oriented model portfolio in a previous article. The focus of that portfolio was directed toward achieving a $1M capital base in approximately 11 years, starting from a base of $217,500. I previously introduced the first 6 stocks in the portfolio here , and the next 6 stocks in the portfolio here . I’d like to introduce the final set of stocks in the Project $1M portfolio here and show how the portfolio stands. My Criterion In addition to companies with moats and strong barriers to entry, I set a specific focus on companies with high returns on invested capital and that were generally achieving double-digit growth with respect to net income and earnings per share. My thinking here was that these types of companies would be likely be able to continue earning above double digit earnings while maintaining their market multiples, and thus generate strong rates of capital growth. The Remaining Companies Westinghouse Air & Brake (NYSE: WAB ) is a technology supplier to the freight rail and the passenger transit industries. The company provides engine cooling, braking and other design and engineering services. Wabtec holds a dominant market share position in North America for the supply of technology to the rail industry. In some specific component segments, such as pneumatic braking systems, Wabtec is part of a strong duopoly along with Knorr Bremse. This dominance is reflected in the significant positive trend in gross margin and operating margin for Wabtec over the last decade. Positive Train Control represents the next revenue driver for the company. Positive Train Control refers to the requirement that certain operational functions of a train be capable of being monitored and controlled electronically. Wabtec has almost tripled revenues from $1.03B in 2005 to over $3.04B in 2014, representing an annualized growth of close to 14%. The company derives returns on equity and returns on invested capital that are consistently over 15%. Celgene (NASDAQ: CELG ) is a strong player in the biotechnology space, with a portfolio of drugs targeted toward cancer and inflammatory conditions. The company’s Revlimid franchise is a blockbuster and delivered over $5B in revenue in 2014. Revlimid has received approvals for the treatment of a variety of conditions including lymphoma and myeloma. With patent protection on the franchise likely to last well beyond the end of the decade, Celgene is poised for long term growth. Celgene’s return on equity have been hovering around 30% for the last few years, which indicates that it is a good steward of shareholder capital. Celgene has managed strong double digit revenue growth for the last decade. I don’t see too many reasons why this won’t be the case for the coming decade as well. Medidata (NASDAQ: MDSO ) solutions provides cloud based simulations and prototyping for life sciences. Medidata provides a valuable service for company’s engaged in drug discovery by helping them to simulate and prototype the effect of a given molecular combination quickly and more cost effectively than with traditional methods. The company has been growing revenues at almost 20% annually, with gross margins seeing a positive upward trend, and hovering at around 75%. With the continued push for faster drug development and continued pressure on traditional pharmaceutical companies, the need for Medidata’s product offerings will only continue to grow. Vipshop (NYSE: VIPS ) is discount e-commerce retailer in China that has pioneered the concept of flash sales. The company aggressively marks down oversupplied or out of season stock, which it makes available on its platform. Vipshop has a particular focus on pushing product to consumers in Tier 3 or Tier 4 cities in China, where there are typically no malls selling brand name product. The company’s rate of growth has been nothing short of extraordinary, with revenue growth in excess of 100% annually for the last few years. While that will undoubtedly moderate overtime, Vipshop occupies a unique niche in the Chinese e-commerce market, With returns on equity in excess of 40%, and a long runway of growth ahead, I think Vipshop could be poised for good long term returns. Zhaopin(NYSE: ZPIN ) provides an online recruitment platform in China. Zhaopin offers online recruitment services, including executive search and campus recruitment. Zhaopin has maintained a strategy of moving into lower tier cities in the quest to drive further revenues. While LinkedIn’s (NYSE: LNKD ) entry into China remains a long term threat for this company, Zhaopin’s early entry and focus on smaller tier cities should provide a competitive edge that allows the company to continue to grow profitably for a number of years. The company has returns on invested capital of over 25%, with revenue growth also in excess of 20%. Polaris (NYSE: PII ) designs and manufactures off road vehicles and other sport utility vehicles including snow mobiles, ATVs and motorcycles. Polaris has a well deserved reputation for design excellence and innovation, which has helped the company stand out in an increasingly crowded market. Polaris has demonstrated a track record of financial discipline over the last decade. Gross margins have shown sustained increase, rising 600 bp over the last decade. This is coupled with returns on invested capital that have exceeded 40% over the last few years. When combined with strong double digit revenue growth over the last decade, Polaris looks quite attractive for future returns. United Therapeutics (NASDAQ: UTHR ) produces drug therapies for patients with chronic conditions and is focused on the unmet needs space. The company currently produces drugs for pulmonary hypertension, congenital heart problems and neuroblastoma. While the company remains exposed to the risk of generics eventually making their way into some of the key niches that the company currently occupies, UHTR is looking to expand the markets it currently serves, and is even looking at the manufacture of artificial organs as a new line of business. The company has grown revenues in the high double digits for the last decade, with returns on invested capital over 40%. This write up concludes the initial set of positions for Project $1M, which is currently fully invested. Below is what the portfolio currently looks like. I will provide periodic updates on portfolio performance and any new positions that are initiated, or existing positions that are existed. Name Shares Held $ Cost Per Share $ Total Cost $ Market Value $ Unrealized Gain/Loss Since Purch % Unrealized Gain/Loss Since Purch Baidu Inc ADR 54 187.47 10,123.38 11,161.26 1,037.88 10.25 Celgene Corp 122 122.71 14,970.62 13,848.22 -1,122.40 -7.5 Core Laboratories NV 64 116.33 7,445.12 7,190.40 -254.72 -3.42 Facebook Inc Class A 99 101.97 10,095.03 10,624.68 529.65 5.25 LinkedIn Corp Class A 42 240.87 10,116.54 10,620.54 504 4.98 MasterCard Inc Class A 305 98.99 30,191.95 30,347.50 155.55 0.52 Medidata Solutions Inc 174 43 7,482.00 7,830.00 348 4.65 Mercadolibre Inc 102 98.37 10,033.74 12,377.70 2,343.96 23.36 Moody’s Corporation 156 96.16 15,000.96 16,277.04 1,276.08 8.51 Novo Nordisk A/S ADR 235 53.18 12,497.30 12,861.55 364.25 2.91 Polaris Industries Inc 89 112.34 9,998.26 9,386.83 -611.43 -6.12 Priceline Group Inc 7 1,454.00 10,178.00 8,970.71 -1,207.29 -11.86 ResMed Inc 174 57.61 10,024.14 10,286.88 262.74 2.62 Starbucks Corp 201 62.57 12,576.57 12,459.99 -116.58 -0.93 United Therapeutics Corp 51 146.63 7,478.13 7,709.67 231.54 3.1 Vipshop Holdings Ltd ADR A 243 20.52 4,986.36 3,973.05 -1,013.31 -20.32 Visa Inc Class A 256 77.58 19,860.48 20,528.64 668.16 3.36 Westinghouse Air Brake Technologies Corp 121 82.87 10,027.27 9,285.54 -741.73 -7.4 Zhaopin Ltd ADR 314 15.19 4,769.66 4,788.50 18.84 0.39 Project $1M 217,855.51 220,528.70 2,673.19 1.23

5 Outperforming CEFs That Are Insulated From Market Corrections

Summary The 2015 market correction caused a 10% drop across the market, but some CEFs were unaffected. Investing in market-neutral CEFs can help you protect your portfolio in the event of an event. I present a list of the 5 most profitable CEFs that are also uncorrelated to the general market. The previous market correction was a three-day selloff that led us to a market that trended sideways for two months. In total, the market lost 10% of its value before climbing back to its original place: (click to enlarge) Knowing not to freak out and to hold onto your investments is good, but having investments that are uncorrelated to the general market in the first place is better. This article is a follow-up to two other articles on investments uncorrelated to the S&P 500. The first article was on investment categories; the second on index funds. This article will be on CEFs, as per a reader request: (click to enlarge) Correlation In my previous article, I used a five-year lookback period. But if we are to really consider these investments uncorrelated to the market, they should not fall when the market does. Hence, the following comment: For this purpose, in this article, I will only be looking at the most recent market correction as my lookback duration. Thus, the correlation calculation will be from August to November, 2015. Whenever we look at the correlation of two investment instruments, we must use the log of those investments. In this way, we find the correlation of returns, not simply price movement. The result will tell us whether two investments are likely to give the same returns over our lookback period. I wrote some R code to screen CEFs according to the following criteria: Trading above $5 (therefore not a penny stock). Has a correlation of less than 0.3 (in magnitude) to the SPDR S&P500 Select ETF (NYSEARCA: SPY ). I then arranged those CEFs in order of greatest return over the past year. I chose the top five CEFs in this list to present to you. Because the top five actually had 3 municipal bond CEFs, I went down the list to add 2 more CEFs outside of this category. The Winners Nuveen Long/Short Commodity TR (NYSEMKT: CTF ) This CEF is a portfolio of long and short futures contracts. CTF purposefully plays a flat game, not taking too many long or short positions. Though it would have been nice to see CTF short energy, making their shareholders lots of cash over the past couple years, CTF has avoided such high-volatility trades. Though CTF’s Nav growth is rather slow, dipping into negative territory, this CEF is trading at a decent discount: -4.36%. The yield is currently 7.54%. Whether CTF can maintain these payouts at its current Nav growth is questionable. The discount is disappearing, however. The discount bottomed out at over -20% in 2014 and has recently bounced back. Thus, if you’re interested in getting in on this high-yield CEF, you should consider doing it soon. Remarkably, CTF is the only CEF in the top five that is not a bond-based fund. Correlation with market-correction phase SPY: 0.27 Babson Capital Corporate Invs (NYSE: MCI ) Here, the focus is on non-investment grade corporate debt. The equities involved are conversion rights, preferred shares, and warrants. Because of the inclusion of conversion rights, the debt here is convertible, which can lead to a dilution of shares. Nevertheless, the yield is high, at 6.80%. However, the surge in price has caused MCI to outgrow its Nav. The Nav sits at a stable 14.70, while the CEF trades at over $17. This CEF is selling at a 10.82% premium. If you buy this CEF, you will be overpaying for the portfolio. But for a long-term investment, MCI seems to provide noteworthy returns. Correlation with market-correction phase SPY: 0.19 Municipal Bond CEFs EV NJ Municipal Bond (NYSEMKT: EMJ ) Blackrock VA Municipal Bond (NYSEMKT: BHV ) Blackrock Muniyield Arizona (NYSEMKT: MZA ) These CEFs offer generous distribution rates of around 5.00. Both BHV and MZA trade at a premium, while EMJ trades at a slight discount. That discount is soon to be gone, as it has been shrinking over the past year. Buying a municipal bond fund can especially benefit you via tax exemptions if you live in a state with high taxes, as these bonds are tax-free investments in most cases. However, realize that EMJ will cause you to pay capital gains taxes on your investment, as it is currently trading at a discount. All of these regions – New Jersey, Virginia, and Arizona – are, to my knowledge, in good shape. But you should perform due diligence and ensure that the local governments aren’t facing problems of paying their debts. Residents in states with high taxes, such as New York, New Jersey, and California, should consider these CEFs. EMJ’s correlation with market-correction phase SPY: -0.09 BHV’s correlation with market-correction phase SPY: 0.25 MZA’s correlation with market-correction phase SPY: -0.11 Doubleline Opportunistic Credit (NYSE: DBL ) With a yield of 8.22, it’s no surprise that DBL isn’t trading at a discount. DBL has almost consistently been trading at a premium. But there have been dips into the discount region. An investor looking for a good deal might keep an eye on DBL and buy at one of these rare discounts. Just remember that a drop in the premium/discount will also typically drop the yield toward the sector’s average. In addition, as time goes on and rates increase, credit-based CEFs such as DBL will likely take a hit. You should also consider leverage here, as rates will likely be rising in the future. Higher leverage implies higher borrowing fees for the fund. DBL might be a good short-term hold, but you should consider dropping it for non-credit CEFs with less leverage before rates rise. Correlation with market-correction phase SPY: 0.02 Strategic Global Income (NYSE: SGL ) Speaking of leverage, here’s a non-leveraged CEF. Previously trading at one hell of a discount, SGL is now trading at “only” a -4.12% discount. This offers the highest discount of all the market-neutral CEFs we looked at today, with a yield of 9.42%. As the name suggests, SGL invests in global bonds. Its holdings branch from Argentina to Russia. These bonds are diversified, with both sovereign paper and corporate notes in the mix. Although a portfolio of such a wide geographical array of holdings is more likely than a focused portfolio to encounter a holding that cannot repay its debt, the fact that SGL is diversified should minimize such problems. The risk is there, but the reward is higher, I believe. This fund doesn’t have many downsides other than the exposure to iffy countries (the average credit rating of SGL’s holdings is still A) and the fact that SGL is taxable. Correlation with market-correction phase SPY: 0.11 Conclusion Overall, we have a wide selection of market-neutral CEFs that can help us generate stable income even during a market correction or crash. Of the five we looked at, I would recommend SGL most to investors in low-tax states, while recommending the municipal bond CEFs to investors in high-tax states. But no matter your choice, rest assured that these CEFs will be least affected by another market correction. Obviously, I simply don’t have the time to cover every industry. While reading this article, you probably thought of at least one investment that should have gone in my “Winners” section. Let me know about it in the comments section below. Request a Statistical Study If you would like for me to run a statistical study on a specific aspect of a specific stock, commodity, or market, just request so in the comments section below. Alternatively, send me a message or email.