Closed-end funds (CEFs) are quite a different breed than exchange traded funds for various reasons centered mostly on how the two products are constructed as well as their pricing mechanisms, and there exists a unique ETF offering that brings the best of both worlds to the forefront.
PowerShares CEF Income Composite Portfolio (NYSEArca: PCEF) is an ETF that tracks the S-Network Composite Closed End Fund Index, which is a universe of 350 closed end funds. This universe follows a rules based formula and is designed to provide the investor with tracking to the overall performance of U.S. listed closed-end funds, and it is reconstructed quarterly.
Investors that normally purchase individual closed end funds may find PCEF appealing because of the relative difficulty that is involved in trading individual CEFs in meaningful size due to the premium and discount issues and volume and liquidity constraints that are often present.
Since PCEF’s price is based on the index itself, and thus is a collective representation of the CEF market on the whole, it is certainly easier to establish or take off a sizable dollar position in this ETF than in trading the individual CEFs on their own.
Additionally, closed-end fund investors often utilize the securities because they desire yield, and CEFs are typically known for delivering better than average yields. This is something that is also delivered by CEF, as the current 30 day SEC yield is listed at 7.83%.
Currently, top holdings of PCEF are the closed end funds, Eaton Vance Tax Managed Global Diversified Equity Income Fund, AllianceBernstein Income Fund Inc., Eaton Vance Tax Managed Diversified Equity Income Fund, Eaton Vance Limited Duration Income Fund and NFJ Dividend & Premium Strategy Fund.
Since inception in early 2010, PCEF is down 7.84% and it has recently rallied nearly 10% off of its lows touched two weeks back during the downdraft in the equity markets.
PowerShares CEF Income Composite Portfolio