An ETF For Groupon Lovers

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July 1, 2013 4:46pm NYSE:PCEF NYSE:XMPT

Yield_Av4 (1)David Bettencourt: What if many of the same stocks, bonds and investment managers owned by investors could be purchased for a Groupon-like discount? One new ETF is focused on that approach and is currently buying one dollar’s worth

of stocks and bonds for 93 cents.

The YieldShares High Income ETF (NYSEARCA:YYY) owns a basket of closed-end funds (CEFs) from firms including Eaton Vance, BlackRock and Nuveen that currently trade at an average discount to net asset value (NAV) of 7%.¬†CEFs are exchange-traded securities, just like ETFs, but are primarily designed to focus on generating high income. In addition because CEFs only issue a static amount of shares, they often trade at a market price that is disconnected from the actual value of the securities held by the fund. Thus when the market price of a CEF trades above its NAV it is deemed to be trading at a “premium” and when the market price trades below NAV it is trading a “discount.”

YYY owns 30 high income CEFs that are trading at “discounts” to NAV. The result is a portfolio with about 60% equity CEFs, 25% bond CEFs and 15% asset allocation CEFs. This produces a portfolio with a low 1.4 year duration, 9.5% distribution and an average CEF discount to NAV of 7%.

YieldShares’ YYY joins two other ETFs of CEFs in the marketplace today, the Powershares CEF Income Composite Portfolio (NYSEARCA:PCEF) and the Market Vectors CEF Municipal ETF (NYSEARCA:XMPT). Together these two ETFs contain about $500 million in assets. To learn more about CEFs check out the infographic below from YieldShares.

YYY Info Graphic

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