Government bonds are no longer paying what they did a few months ago as the Federal Reserve starts cutting interest rates. The 10-year yield has dropped from 5% in 2023 to 4.075% today, while the 30-year and the 5-year have moved to 4.38% and 3.88%, respectively.
This trend may continue as the Federal Reserve is expected to continue cutting interest rates in the coming months. The CME FedWatch tool estimates that interest rates will be between 3.25% and 3.50% in December next year. A sign that the economy is not doing too well could push it much lower
Therefore, finding quality assets that pay handsome rewards can be a good thing. On Friday, we covered some of the top companies yielding over 8% to consider. The challenge for investing in individual stocks is that a single event can push it much lower. We have recently seen that with companies like GoPro and Medical Properties Trust (MPW).
A better approach is to invest in either ETFs or closed-end funds (CEF), which are made up of many stocks. Here are some of the top funds that pay monthly payouts to consider.
BNY Mellon High Yield Strategies Fund | DHF
The BNY Mellon High Yield Strategies Fund is a small closed-end fund that pays about 8% annually. This means that $100,000 invested in the fund will pay you about $665 every month, which is a good return. Of course, you have to consider other costs like taxes and its 1.36%.
According to its website, $10,000 invested in the fund at its inception in 1998 would now be worth over $30,000. As with other closed-end funds, it often trades at a discount, which stands at about 6.14%.
The fund achieves this by investing in bonds of 356 companies and applies a 26.70% leverage. Most companies in the fund are high-grade or junk status. 12% of these firms are in the energy sector, followed by those in the telecommunication, finance, industrial, materials, and healthcare.
Some of the top companies in the fund are TransDigm, CCO Holdings, Ardonagh, AthenaHealth, Vistra, and Paramount Global.
The benefit of this fund is that most companies in the US have avoided defaults even as interest rates jumped to the highest point in over two decades. The DHF fund has done well this year, with its total return being 21.2%, and technicals point to more gains.
Guggenheim Taxable Municipal Bond & Investment Grade Debt Trust | GBAB
The Guggenheim Taxable Municipal Bond & Investment Grade Debt Trust is a fund started in 2010 to provide investors with monthly income. Its secondary objective is to offer long-term capital appreciation. It has over $389 million, a dividend yield of 8.95%, and an expense ratio of 1.20%.
It does that by investing at least 80% of its funds in taxable municipal securities. Its investments include bonds to organizations like schools, hospitals, and housing.
As part of its diversification strategy, the fund does not invest more than 25% of its assets in municipals in a single state. Most of its assets, or 53%, are in Build America Bonds (BAB) followed by investment grade corporate bonds, asset-backed securities, high-yield corporate bonds, bank loans, and others.
The biggest parts of the fund are in West Virginia, Dallas, Philadelphia, Oklahoma, and Oakland. GBAB’s total return this year is 12% and by 25% in the last 12 months.
Eaton Vance Tax-Advantaged Global Dividend Income Fund | ETG
The Eaton Vance Tax-Advantaged Global Dividend Income Fund is another fund that provides a 8% yield. It has an expense ratio of 1.26% and over $1.6 billion in assets.
The fund generates its returns by investing in global stocks. It then provides most of its payouts through qualified dividend income (QDI), which are often taxed at a lower rate than other funds.
Most companies in the fund are in the technology sector, followed by healthcare, financials, industrials, and consumer cyclical.
Some of the top constituents are well-known brands like Microsoft, NVIDIA, Alphabet, Amazon, Apple, AstraZeneca, and Compass Group. Its top ten holdings account for about 27% of the fund. It has also invested about 11.15% of its funds in corporate bonds. The ETG fund has had a total return of 20.17% this year and over 74% in the past five years.
The DHF, GBAB, and ETG funds are ideal assets for income-focused investors. However, for people investing in the long-term, the easiest way is to allocate funds in basic funds like the S&P 500 and the Nasdaq 100.
While these funds pay a small dividend, they have a long track record of doing well. For example, as shown above, the Vanguard S&P 500 (VOO) fund has had a total return of 112% in the past five years.
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