The stock market has seen a steady rise in 2024, with the S&P 500 up nearly 14% as of June. While there may be more highs in the market’s future, it is expected that there will also be more dips along the way. This presents opportunities to invest in high-yielding closed-end funds (CEFs) during these dips. In fact, there are three bargain-priced bond funds currently available, offering yields of up to 12.5%. The analysis ranks these bond funds from worst to first and provides insights on when the next recession might occur.
Unemployment rates are on the rise, although they remain historically low at 4%. However, continued increases in unemployment could lead to recession-level rates by February 2026. The economy is currently strong but showing signs of weakening at the margins, which can have implications for stock market performance. With this in mind, now may be an ideal time to consider investing in bonds for more stable income.
Interest rates on corporate bonds have remained high for an extended period, offering investors the opportunity to lock in a 7% income by investing in a diversified fund that includes investment-grade and high-yield bonds. As evidenced by significant inflows into high-yield bond funds in 2024, investors are increasingly turning to corporate-bond CEFs for sustained income with less risk compared to stocks. There are several attractive funds available, offering deep discounts to their net asset value (NAV).
The Western Asset Inflation-Linked Opportunities & Income Fund (WIW) is an 8.4%-yielding fund that focuses on inflation-linked bonds with a long duration. The Virtus AllianzGI Convertible & Income Fund II (NCZ) offers a 12.5% yield with a diversified portfolio of convertible bonds and other high-yield assets. The Pioneer High Income Trust (PHT) stands out with an 8.9% yield and a significant discount compared to its historical trends. PHT’s selection of reliable bonds, including those issued by insurance companies, has provided strong returns for shareholders, with the potential for continued growth if interest rates remain high.
Investors looking for opportunities to generate income in the current economic environment may find corporate-bond CEFs particularly appealing. With the potential for sustained income and lower principal risk compared to stocks, these funds offer a compelling investment option. By carefully selecting funds with strong track records and attractive discounts, investors can position themselves to benefit from the income generated by these bond portfolios.
In conclusion, the current market conditions present opportunities for investors to consider alternative income-generating assets such as corporate-bond CEFs. With the potential for sustained income and possible capital gains from discounts narrowing over time, these funds offer an attractive option for those seeking reliable returns in a changing economic landscape. By conducting thorough research and selecting funds with strong performance histories, investors can position themselves to benefit from the income potential of these bond portfolios.
