Don’t let fears of a Federal Reserve rate hike scare you away from these four promising closed-end funds

The Street’s Gregg Greenberg spoke with special guest and nationally recognized closed-end fund expert John Cole Scott about four closed-end funds that are poised to do well even if rates rise. See John discuss the MFS High Income Municipal Trust (CXE), the Calamos Global Dynamic Income Fund (CHW), The Cushing MLP Total Return Fund (SRV) and the Saratoga Investment Corp. (SAR).

Watch full video on TheStreet.  


Will highly leveraged closed-end funds (CEF) be slammed by a December interest rate hike?

“A rate hike will likely impact highly leveraged closed-end funds in the short run, however the lower for longer environment will make them attractive over the long term,” said said John Cole Scott, chief investment officers at Closed-End Fund Advisors.

 One of Scott’s current favorite closed-end funds is the MFS High Income Municipal Trust (CXE) . The muni CEF trades at a 4% discount to its net asset value and currently sports a yield of 5.5%. The three year average discount for the CXE is 8.7%. Leverage in the fund is 36% and it has a duration of 7.2, which is low for funds in this category.

“The CXE is a good equity hedge in an uncertain market environment and the tax-equivalent yield of around 9% is hard to beat,” said Scott.

Scott is also recommending the Calamos Global Dynamic Income Fund (CHW) , a hybrid CEF that mixes global stocks and bonds. It currently trades at an 11% discount, close to its three year average, and has a leverage of 30%. Yield on the CHW is 11.4% at last check.

“Calamos has experienced active managers so investors can feel comfortable that they are in good hands,” said Scott.

The Cushing MLP Total Return Fund (SRV) pays an 8.4% yield and sports a 31% leverage ratio. The pipeline CEF trades at a discount of 13%, well below its three year average premium of 1%. Scott said the energy play is comprised of 71% midstream outfits so it is “less tied to the price of oil” than many other funds.

Finally, Scott is a fan of the Saratoga Investment Corp. (SAR) , a debt-based business development corporation trading at a 19% discount compared to its three year average of 28%. Saratoga yields a healthy 9.7% in a low-yield environment.

“Saratoga trades at a discount because it is small, not because it is poorly run,” said Scott.