Investors looking to purchase the Guggenheim Strategic Opportunity Fund (GOF) are facing a premium of 27%, which is significantly higher than its historical average. While the fund has delivered solid yearly returns of 9.8% since its inception, experts caution against buying at such inflated levels. The closed-end fund does not issue more shares as its popularity grows, leading to premiums like the one currently seen with GOF.
While the temptation to jump on the bandwagon and purchase GOF at a premium is strong, history shows that the fund tends to trade at a discount every year or two. Patient investors who wait for these discounts can lock in a high yield with potential for price appreciation. In contrast, those who purchase at a premium are at risk of experiencing a significant price loss when the premium eventually disappears.
Another fund trading at a 27% premium to its net asset value is the PIMCO Corporate and Opportunity Fund (PTY). While PIMCO is a well-known bond shop, experts caution against purchasing PTY at such an inflated level. Instead, investors are advised to consider other PIMCO funds that offer better value, such as the PIMCO Dynamic Income Opportunities Fund (PDO) or the PIMCO Access Income Income (PAXS), which offer higher yields at lower premiums.
In CEFland, several funds are currently trading at inflated prices, including the Calamos Dynamic Convertible and Income Fund (CCD). While CCD has historically provided solid returns, current buyers are paying a 20% premium, which may prove to be a risky move. Convertible bonds, such as those held by CCD, offer income and potential for stock upside, making them an attractive investment. However, given the current premiums, investors may be at risk of experiencing significant downside potential when the funds return to more realistic valuations.
While some investors may be attracted to funds trading at premiums due to their popularity and potential for high returns, experts advise caution and patience. Waiting for discounts and avoiding trendy purchases can help investors lock in higher yields and protect their portfolios from significant price losses. By practicing patience and seeking out undervalued opportunities, investors can position themselves for long-term success in the CEF market.
