3 Funds (Yielding Up to 12.5%) Set to Soar as the Economy Downshifts

At my CEF Insider service, we started 2024 expecting stocks to rise about 10% to 15% this year. Well, we’re well within that range now: the S&P 500 is up just under 14% in 2024, as of this writing.

And it’s only June! Which means that while stocks can keep going higher, we’ll likely see more dips as the market catches its breath.

We’ll use those dips to pick up our favorite 8%+ yielding closed-end funds (CEFs), of course. But we don’t have to wait around for our next dip-buying opportunity—I’ve got three bargain-priced bond funds for you to consider now, yielding up to 12.5%. I’ll go through them, and rank them from worst to first, shortly.

But what about the long run? Let’s talk about that, because I’ve done an in-depth analysis of the job market that might (I emphasize might—all predictions, including mine, should be taken with a grain of salt) tell us when to expect the next recession.

More Unemployment = A Long-Term Risk

These days, we are seeing the unemployment rate tick up. And while the current 4% remains low historically speaking, growing unemployment does tend to reinforce itself. If this keeps going, a linear regression suggests we could see unemployment rise to recession levels in February 2026.

The simple way to think about this is that the economy is strong now and weakening at the margins, but relatively slowly and predictably. That can be good or bad for stocks, but it means now is a great time to buy bonds.

Source: Apollo Global Management 

Major credit manager Apollo Global Management has pointed out something we’ve talked about at CEF Insider for a while: Interest rates on corporate bonds have stayed high for a long time, around 6% on the investment-grade side and 8% for high-yield.

So a fund that invests in a bit of both should easily yield 7%, and investors who buy into such a fund can “lock in” 7% income for a long time, just by buying now and waiting for its bond portfolio to keep paying out income.

The smart money, of  course, already knows this. That’s why we’ve seen $6.1 billion of net inflows into high-yield bond funds in 2024—the most since 2021. So if you want sustained income and less risk to your principal than stocks, corporate-bond CEFs are particularly compelling now.

There are a lot of great funds out there to choose from, but today we’ll quickly run through three—all of which trade at deeper-than-usual discounts to net asset value (NAV, or the value of their portfolios).

Let’s start with the 8.4%-yielding Western Asset Inflation-Linked Opportunities & Income Fund (WIW), whose strategy makes it a standout: With a portfolio of inflation-linked bonds with a very long duration (8.3 years), WIW is designed to maximize income in both growing economies and those with high inflation. If you think inflation is going to reverse course and head higher, or if you think the economy is going to keep soaring, WIW is worth a look.

If, however, you think inflation will keep decelerating or stay around where it is, and we aren’t going to see a recession anytime soon, the Virtus AllianzGI Convertible & Income Fund II (NCZ) is attractive with a diversified portfolio of convertible bonds and other high yield assets.

Of course, the fund’s 12.5% yield is the showstopper here, but also consider how its 11.9% discount is huge compared to the 1.3% discount at which the fund has historically traded over the last decade. If we don’t get a major recession and inflation keeps decelerating, NCZ could see its discount shrink, giving investors gains on top of their outsized income stream.

However, out of these three, the 8.9%-yielding Pioneer High Income Trust (PHT) has the most appeal. Its 9.1% discount is much larger than its historical 2.1% markdown, providing most, if not all, the capital-gains potential of NCZ.

The fund’s holdings are a mix of logistic and energy-transport companies that have reliable income streams, as well as bonds issued by insurance companies like the Hanover Insurance Group (THG) and Liberty Mutual. Bear in mind, too, that insurance-company bonds produce extremely reliable income streams.

PHT’s Portfolio Launches Into Rebound Mode

PHT’s careful selection of reliable bonds that generate a high income for shareholders has resulted in the fund’s underlying NAV returning more than double what the other funds on this list have delivered in the last year. I expect that to continue if rates stay higher for longer than most folks expect, just like we’ve seen over the last 12 months. The closing of that 9.1% discount will help, too.

Do This to Clock Big (Monthly!) Dividends and Upside in Any Rate Environment

By strategically investing in these three top-tier CEFs, you can enjoy income that drops into your account like clockwork as this “levitating” economy continues to play itself out.

But we really want to go one step further, with CEFs that deliver high income, upside and monthly payouts that roll in right in line with our bills. This is where the 9.2%-yielding CEFs in my “Monthly CEF Dividend Portfolio” come in.

I personally hand-picked these monthly paying cash machines to deliver consistent, high yields for many years to come, providing you with the steady cash flow you need to fund your retirement, supplement your income, reinvest, save for a second home—whatever your financial goal.

The choice is yours!

Click here to get full access to this carefully curated selection of 9%+ yielding monthly payers in a free Special Report. You’ll also learn all about our 9%+ dividend strategy in CEFs—and how we spot the best ones for outsized gains and big cash payouts. Don’t miss out.