CT UK High Income Trust outperforms and hikes dividends again

• QuotedData
• Matthew Read

CT UK High Income Trust (CHI) has published its audited results for the year ended 31 March 2025, delivering another year of outperformance and a twelfth consecutive annual increase in distributions to shareholders. Over the financial year, the trust’s NAV total return was +13.5%, comfortably ahead of the FTSE All-Share Index’s +10.5% return. Share price total returns were even stronger, at +25.0% for ordinary shares and +24.0% for B shares, as market demand narrowed the discounts on both share classes.

No continuation vote required

Over the three-year performance measurement period (1 April 2022 to 31 March 2025), the trust delivered an NAV total return of +26.6%, outperforming the benchmark return of +23.3%. As this exceeded the board’s performance threshold, no continuation vote will be required at the 2025 AGM.

Income and dividends

The trust continues to focus on delivering a high and growing income. Total distributions rose by 3.0% to 5.79p per share, equating to a yield of 5.8% on the ordinary shares and 6.0% on the B shares at the year-end. A strong uplift in earnings (up 19.7%) enabled a transfer of £635,000 to the revenue reserve, which now stands at £2.9m – equivalent to 60% of the current annual dividend.

Portfolio activity and gearing

Manager David Moss highlighted successful stock selection as the main driver of outperformance, with strong contributions from NatWest, Rolls-Royce, Shell, and a re-rating in Hargreaves Lansdown following a private equity takeover. The trust also added holdings such as HSBC, Taylor Wimpey, and Breedon Group, while reducing exposure to Vistry and CRH.

Although structurally geared, leverage was tactically reduced in early 2025 amid growing macro volatility – particularly around the re-election of Donald Trump and his tariff agenda. As of year-end, £15m of the trust’s revolving credit facility had been drawn, with £9.5m held in cash.

Share issuance and discount management

Reflecting improved sentiment, the trust’s odinary shares ended the year at a 2.1% discount to NAV, while B shares traded at a 4.1% discount. The trust was one of the few in the sector to issue new shares, with 1m ordinary shares resold from treasury at a premium to NAV. Conversely, 250,000 B shares were bought back into treasury at a discount.

Outlook

Chairman Andrew Watkins struck a cautious but ultimately optimistic tone, noting ongoing challenges from high interest rates, UK fiscal policy, and geopolitical tensions. Nevertheless, he expressed confidence in the portfolio’s positioning and praised Moss’s ongoing stewardship. The manager remains focused on identifying undervalued UK equities with strong dividend-paying capacity, noting the potential for further income and capital growth in a still-overlooked domestic market.

[QD comment MR: This is a decent set of results from CT UK High Income Trust. While it has outperformed during the last financial year, these results confirm its outperformance over three years, which has allowed it to dispense with a continuation vote this year.

The NAV total return of 13.5% over the year looks solid given the uncertain macro backdrop and, with the UK equity market still trading at historically wide discounts to global peers, it, and its peers that are focused on UK equities, should be well-placed to benefit from any reappraisal of UK valuations. The ongoing bid activity in UK equities adds weight to the argument that investors who are avoiding the UK could miss out. In the meantime, twelve consecutive years of dividend increases, along with the rebuilding of the revenue reserve, provide some comfort to income-seeking investors amid a still-uncertain economic outlook.]

8th April 2025 11:32

by Sam Benstead from interactive investor

Central bank interest rate rises mean that investors can finally get a good return on their cash.

In the UK, the Bank of England base rate is now 4.5%. Interest rates peaked at 5.25% but are beginning to fall as inflation has dropped back near the central bank 2% target. Some economists think that UK interest rates could end 2025 at around 4%, but a lot will depend on inflation figures. 

Investors have a number of options. While they could buy UK government bonds (gilts), which yield between 4% and 5%, they could also stray into the corporate bond market, where yields are even higher. However, bond prices can be very volatile, and investors could be hit with capital losses even if the income is stable.

Savings accounts are another option, but yields tend to lag bond market equivalents. Moreover, unless the account is inside a cash ISA, where returns are lower, savers may have to pay tax on their returns.

Basic-rate taxpayers (up to £50,270 annual income) get a £1,000 tax-free savings allowance, while higher-rate taxpayers (up to £125,140 annual income) get £500 and additional rate taxpayers (earning more than £125,140) get nothing. Any savings interest above the thresholds is taxed at income tax rates.

Money market funds could fit the bill

Money market funds are a viable in-between option, offering the income similar to gilts maturing soon, but without the complexity, while also mitigating the risk of bond price fluctuations. They can be held inside ISAs and SIPPs.

They own a diversified basket of safe bonds that are due to mature soon, normally within just a couple of months, meaning that investors can earn an income on their cash with minimal risk. They can also put money into bank deposit accounts and take advantage of other “money market” instruments offered by financial institutions. 

On our platform, assets in money market funds have risen 1,100% (a 12-fold increase) in the past two years.  

Fund industry trade body the Investment Association (IA) categorises money market funds into two buckets: short-term and standard-term funds.

Short-term funds are lower risk. Fund managers try to ensure the highest possible level of safety by keeping very short duration bonds and high-quality bonds in the portfolio.

Standard money market funds generally deliver slightly higher returns by owning bonds that have slightly longer maturity dates. There are also less stringent liquidity requirements. 

Fund	Ongoing charges figure (%)	Yield (%)	Fund size (£million)
Royal London Short Term Money Market	0.1	4.53	7,489
L&G Cash Trust	0.15	4.5	3,251
Fidelity Cash	0.15	4.54	1,937
BlackRock Cash	0.2	4.54	973
Vanguard Sterling Short Term Money Market	0.12	4.93	1,400

Source: FE Analytics/ latest data published as of 8 April  2025. Past performance is not a guide to future performance.

Fund	Ongoing charges figure (%)	Yield (%)	Fund size (£million)
Premier Miton UK Money Market	0.26	4.4	330
Invesco Money (UK) No Trail	0.15	4.38	116
abrdn Sterling Money Market	0.15	4.7	835

Source: FE Analytics/ latest data published as of 8 April  2025. Past performance is not a guide to future performance.

Investors usually have a choice between an accumulation (acc) or income (inc) version of a fund, which determines whether income is automatically reinvested or paid out as cash. 

Dzmitry Lipski, head of funds research at interactive investor, says: “Royal London Short Term Money Market stands out most to us in the sector. It has an excellent long-term track record, low drawdowns and is competitively priced with a yearly ongoing charge of 0.10%.

“The fund seeks to maximise income by investing in high-quality, short-dated cash instruments. The managers place particular emphasis on the security of the counterparties it lends to, while ensuring daily liquidity.”

The interest paid by money market funds will fluctuate with bond market yields, which are closely linked to central bank interest rates. This means it will rise when yields rise, but fall when yields fall. As interest rates are expected to keep dropping this year and next, yields on money markets are also likely to drop. 

 Advantages of a money market fund

• Very low risk, with the portfolio likely to at least hold its value and also pay out a modest income
• Diversified, meaning investors are not exposed to a single bond failing and can withdraw their money easily
• Can be held in a tax-friendly wrapper, such as an ISA or SIPP.

Disadvantages of a money market fund

• Investments may fall in value, unlike savings accounts
• Not suitable for growing savings over the long term as inflation will eat into returns
• Sensitive to interest rate fluctuations, with lower rates leading to lower yields. Yields rise when interest rates rise
• The Bank of England warns that in times of market panic and a rush to cash, there may be liquidity issues in money market funds.

These 2 dividend stocks have yields above 10%! Could they deliver £2k of annual passive income?

Mark Hartley considers the potential benefits — and risks — of two high-yielding solar energy dividend stocks as part of a passive income portfolio.

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An extra £2,000 of tax-free passive income could make a nice addition to anybody’s year-end budget. That’s the beauty of investing via a Stocks and Shares ISA — no capital gains tax is levied on returns and we can add up £20k to the ISA annually.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

But to secure £2k of annual income from a £20k ISA pot, an investor needs to achieve average returns of 10% per year. That’s a hard ask, considering the FTSE 100 has returned less than 7% on average since its creation. That said, the S&P 500 and the MSCI World index have returned approximately 10% a year.

Investing in one of these index trackers could deliver 10% gains a year — but shares would eventually need to be sold to enjoy the profits. A better way may be to invest in high-yielding dividend stocks. The dividends received could be reinvested to grow the pot, or withdrawn as income — without having to reduce any holdings. That’s true passive income!

I’ve identified two FTSE 250 solar energy investment trusts to consider that have a 10-year history of uninterrupted dividend growth. Not only that, their yields are currently above 10%.

But as ever, there are some concerns to consider. Let’s take a look.

Foresight Solar Fund

Foresight Solar Fund (LSE: FSFL) operates approximately 61 solar and battery storage assets with a combined capacity of around 1.1 gigawatts (GW). They’re primarily located in the UK, with some international exposure. It can allocate up to 10% of its gross asset value (GAV) to standalone energy storage systems, helping enhance grid stability.

In the past 12 months, its yield has fluctuated between 8% and 12%, with dividends increasing at a rate of 3% a year since 2015. This illustrates a strong dividend policy and dedication to shareholder returns.

However, past performance is no indication of future results, and high yields increase the risk of dividend cuts. Additionally, the fund is sensitive to fluctuations in electricity prices and interest rate changes, both of which could impact its revenue. 

Next Energy Solar Fund

Next Energy Solar Fund (LSE: NESF) is another investment trust specialising in utility-scale solar energy and energy storage assets. It owns 101 operational solar and energy storage assets worth £1bn, with a combined installed capacity of 934 megawatts (MW). The fund can invest up to 30% of its GAV in OECD countries outside the UK, adding to revenue diversification.

Its yield has ranged between 9.8% and 13.8% in the past 12 months, with dividends growing at a rate of 4.8% since 2015.

Like Foresight, changing electricity prices or interest rates could affect revenues — although long-term contracts and subsidies help to mitigate this risk. It also has quite a high debt gearing of 47.2%, which, while still within an acceptable range, could be risky if it increases.

Things to think about

While these yields are impressive, there’s no guarantee they would remain above 10%. The best approach would be to consider diversifying these stocks in a portfolio with a high-growth MSCI or S&P 500 index fund. This would make it more stable and less sensitive to interest rate changes.

Overall, it’s unlikely to achieve a consistent average return of 10% every year. A stable portfolio returning 7% to 8% is more realistic, which, if built up over time, could soon reach a level that pays £2k in annual dividends. And adding more to an ISA each year should mean that the income amount rises each year too.

Young mixed-race couple sat on the beach looking out over the sea© Provided by The Motley Fool

Passive income ideas come in all shapes and sizes. One I use myself, along with millions of other people, is buying shares I hope will pay me dividends in future.

As an approach, I reckon this has both pros and cons. Here are eight.

Pro: it’s genuinely passive

What I see as a massive pro is that as a passive income idea it really is passive.

I bought shares in BP — and now earn regular dividends from the oil major without ever lifting a finger.

Con: it takes capital…

Buying shares requires money, even though the amount can be little.

That can be seen as a con compared to some passive income ideas that require no capital. But I think the catch there, for me at least, is that an idea that requires zero financial capital is likely to require some human capital such as labour and/or time.

Pro: …it doesn’t take much capital

When I said above the amount can be little I meant it!

If you have enough to buy a coffee each day, you already have enough to start building up in a share-dealing account or Stocks and Shares ISA to earn passive income.

Pro and con: the income’s not guaranteed

Dividends are never guaranteed, even if a company has paid them before.

That can be a con, as when Shell shareholders in 2020 saw the dividend cut for the first time since the Second World War.

But it can also be a pro.

Con: it can take effort to find great shares

What sort of share could be a good choice for future passive income streams?

It can take some effort to find out. After all, a company can axe its juicy dividend suddenly (as Direct Line did a couple of years ago).

But taking time to dig into a share can also reveal a potential bargain that looks set to generate a lot of future income.

I bought Diageo shares because I know the alcoholic drinks market is huge and the firm’s brands, such as Johnnie Walker, give it pricing power that can translate into chunky free cash flows and dividends.

Pro and con: share prices matter too, not just dividends

Still, while I am upbeat about the demand outlook, there is a risk that fewer drinkers in younger generations will mean Diageo’s sales shrink.

That helps explain why the FTSE 100 firm’s share price has fallen 26% in five years.

But it points to the fact that, when buying shares for dividends, it is important to remember that they can later lose value.

On the other hand, an increasing share price could ultimately mean (if sold) extra passive income on top of any dividends.

The post pros and cons of buying shares as a passive income idea appeared first on The Motley Fool UK.

SDCL Efficiency Income Trust plc
(“SEIT” or the “Company”)

Change of Name and website address

The Company announces that, effective from 21 May 2025, it has changed its name to SDCL Efficiency Income Trust plc. Dealings under the new name will commence at 8.00 am (BST) on 29 May 2025. The Company’s stock market ticker, ISIN, LEI and SEDOL numbers will remain unchanged.

The Company also announces that its corporate website address will change to http://www.seitplc.com on 29 May 2025.

The Company confirms its investment strategy and portfolio of assets remain unchanged.

The name change is in response to new fund naming guidelines from the European Securities and Markets Authority (“ESMA”).

Shareholders are unaffected by the change and existing share certificates will remain valid and should be retained. Any new share certificates issued will bear the name SDCL Efficiency Income Trust plc.

Tony Roper, Chair of SEIT, said:

“SEIT is proud to be both an Article 9 Fund and a recipient of the London Stock Exchange’s Green Economy Mark. To continue to be able to market into the EU, SEIT needs to comply with ESMA, and this name change achieves that. Since its IPO in 2018, the Company’s investment strategy has focused on building a large and diversified portfolio of assets that deliver efficient energy solutions to end users. These solutions directly support the energy transition by virtue of reducing the amount of energy that is wasted globally.

FORESIGHT ENVIRONMENTAL INFRASTRUCTURE LIMITED

(“FGEN” or the “Company”)

Dividend announcement

FGEN, a leading listed investment company with a diversified portfolio of environmental infrastructure assets across the UK and mainland Europe, announces a final quarterly dividend of 1.95 pence per share for the period from 1 January 2025 to 31 March 2025.

Together with the interim dividends paid during the financial year to date of 5.85 pence per share, the Company will have paid total dividends of 7.80 pence per share in respect of the year ended 31 March 2025, in line with the dividend target set out in the 2024 Annual Report.

Dividend Timetable
Ex-dividend date           5 June 2025
Record date                  6 June 2025
Payment date               27 June 2025

SUPERMARKET INCOME REIT PLC

(the “Company”) 

RECOMMENDED PROPOSED TRANSFER OF LISTING CATEGORY AND NOTICE OF GENERAL MEETING

Supermarket Income REIT plc (LSE: SUPR), announces that a circular (the “Circular”) in relation to the proposed transfer of the Company’s listing category from the closed-ended investment funds category to the equity shares (commercial companies) category of the Official List (the “Proposed Transfer”) is expected to be published today.

Background to and reasons for the Proposed Transfer

On 4 March 2025, the Company announced the proposed internalisation of its management function (the “Internalisation”), which became effective on 25 March 2025. At the time of the announcement of the Internalisation, the Company also stated its intention seek a transfer of its listing. The Board is pursuing the Proposed Transfer as it believes that the equity shares (commercial companies) category of the Official List is more suited to a UK REIT with an internalised management structure and business strategy as set out in the Circular, alongside the reasons set out below:

·    it will significantly improve comparability for investors, as the majority of internally managed UK REITs are listed on the equity shares (commercial companies) category;

·     the Company’s closest peers are listed under the equity shares (commercial companies) category;

·    the Company will benefit from improved operational flexibility, efficiency and accountability of the Group’s executive management to shareholders;

·   it will reduce the costs and administrative burden associated with being a closed-ended investment fund (in particular, AIFM costs), thereby simplifying the business model and enhancing shareholder returns. The Company will no longer need to have a licensed AIFM;

·  the Board has concluded that generating attractive shareholder returns also arguably requires a more commercial/active asset management approach and having the flexibility to pursue new strategies will be a key element of its ongoing success;

·     the Board believes that being categorised as a commercial company will increase investor demand both from the UK and overseas;

·     it will potentially attract a wider range of research analysts; and

·    the Board has consulted with certain shareholders, who are strongly supportive of the Proposed Transfer, particularly for the reasons outlined above.

Story by Temie Laleye

A £100,000 pension pot could now secure a significantly higher income in retirement, as improved annuity rates offer better value for those seeking guaranteed lifelong payments.

The latest data shows a 65-year-old with a £100,000 pension pot can secure an annual income of up to £7,814 from a single life level annuity with a five-year guarantee. This compares to just £5,724 per year from an annuity that increases by three per cent annually.

This substantial difference of over £2,000 per year in initial income explains why level annuities remain the most popular choice among retirees. The immediate financial benefit is compelling, particularly for those prioritising higher income in the early years of retirement.

The vast majority of annuity purchases are level products that don’t increase over time, according to Hargreaves Lansdown.

Pensioners face a crucial decision when purchasing annuities, with new data revealing stark differences between level and inflation-linked options.

Couple at laptop© GB News

The choice between higher initial income or inflation protection represents one of the most important financial trade-offs for retirees.

While level annuities offer substantially more income in the early years of retirement, inflation-linked alternatives provide increasing payments that may prove valuable over a potentially lengthy retirement period.

This decision has long-term implications for pensioners’ financial security and purchasing power.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, cautions against focusing solely on initial income.

She said: “However, with retirement potentially lasting twenty years or more the issue of inflation does need to be taken into account.

If you take out an annuity, you have to hand over all your hard earned.

It’s a gamble with your future as you do not know what interest rates will be when you wish to retire. If you were unlucky, you could be offered

Canada Life figures show the 65-year-old with a £100,000 pension pot could buy an annuity linked to the retail price index (RPI) that would generate a starting annual income of £3,896. That’s up from £2,195 in the New Year following a 77% spike in rates this year.
Oct 22

Don’t let that be you, unless when you retire interest rates have spiked and then it could be an option.

This 8% Dividend Is AI’s “Secret” Winner

Michael Foster, Investment Strategist
Updated: May 19, 2025

Can we still call ourselves contrarians if we buy into “mainstream” trends like the stunning growth of AI? Of course we can.

Today we’re going to do just that. But of course we’re not picking up obvious names like NVIDIA (NVDA). Instead we’re looking to an 8%-paying fund I see having even more upside than the “go-to” AI stocks everyone else is buying.

For Profitable Contrarian Investing, Think “Oblique,” Not “Direct”

The technique we’re going to use here is a very underappreciated concept called “oblique investing.”

Sounds a bit dry, I know, but it’s anything but. The idea here is, roughly speaking, to invest in big forces driving the market and shifting the economy over the foreseeable future.

Obvious, right? There’s more here, though, because, of course, doing this directly by investing in the trend itself means you’ll likely overpay, since the market has already picked up on it.

So instead, we’re going to look to stocks (and funds!) that are well-positioned to ride the trend higher but aren’t the obvious names in their sectors.

NVIDIA Was a Prime “Oblique” Investment in the Last Decade …

It’s best to look at this through an example: In the mid-2010s, technology’s rise to dominance over other sectors was a clear trend. So anyone who bought the “big three” semiconductor stocks—NVIDIA, Advanced Micro Devices (AMD) and Intel (INTC)—would have easily beaten the S&P 500 on average.

Buying the Trend Pays Off Handsomely

As we can see, big gains from AMD (in blue) and NVIDIA (in purple) more than offset losses on Intel (in green).

However, back then, buying NVIDIA, which was best known for making graphics cards for gamers, seemed like a losing move compared to Intel, which made the CPUs in almost every computer. Even Apple (AAPL) had switched to Intel processors.

In other words, the “obvious” investment in the future did not play out, while the closely related, but not directly plausible—or “oblique,” if you will—story did play out.

… But It’s Anything But Today

Fast-forward to today and we’re looking at another trend in the process of rewriting tech—and many aspects of society as a whole: AI.

Here too, NVIDIA is the major player, with its chips powering the AI trend, much like Intel’s chips powered the rise of tech more generally in the 2010s.

Thanks first to its gains from powering the tech sector and then to its AI dominance, NVIDIA has grown to become the second-largest stock in the S&P 500. The numbers are staggering: Over the last 10 years, NVIDIA went from being 0.063% of the S&P 500 to 5.8% now.

And as I write this, following the tariff selloff, investors are starting to turn back to the story of US economic growth driven by, you guessed it, technology such as AI.

And so NVIDIA is starting to recover, but its ceiling is much lower than it was in the past. It’s already risen some 25,000%+ in the last 10 years, and another 25,000%+ gain over the next decade is simply not in the cards.

Where does that leave us? Obviously, we want to invest in AI’s ongoing growth, but we don’t want to get into a crowded trade.

Enter AIO: A Top “Oblique” AI Pick 

That brings me to a closed-end fund (CEF) called the Virtus Artificial Intelligence & Technology Opportunities Fund (AIO), which we once held in my CEF Insider service. CEFs are, of course, wildly underappreciated, so to say AIO is “oblique” compared to NVIDIA might be the king of understatements!

Nonetheless, this 8%-yielding fund (more on the payout in a moment) does hold NVIDIA, so we get some exposure to the company’s ongoing growth (which will continue, even if it doesn’t hit those 25,000% gains of the past). We’re getting the other “usual suspects” in AI, too, including Meta Platforms (META).

But the real key to AIO’s “oblique” appeal is that it also holds firms that benefit by using AI in their day-to-day businesses, like drug maker Eli Lilly & Co. (LLY), insurer Progressive Corp. (PGR) and heavy-equipment maker Deere & Co. (DE). Firms like these are key to profitable AI investing because it’s likely to be the users of this tech—not the providers—that reap the biggest profits from it.

While it’s best known for its chatbot, AI leader OpenAI also has many enterprise clients, including John Deere.

In short, Deere uses AI to make its products more efficient, such as its herbicide spray, which uses fewer chemicals than competitors’ offerings. That results in healthier, cheaper products, said Justin Rose, Deere’s president of lifecycle solutions, supply management and customer success, in his recent conversation with OpenAI. (If you’re into farming, the entire interview is worth reading.)

Of course, these are far from obvious cases of AI integration, so they’re not priced into stocks like Deere yet, and that is exactly why AIO is holding them. Same goes for Progressive using AI to lower its marketing costs and Eli Lilly using AI to discover new drugs. AIO is collecting these “hidden” AI plays for investors to hold for the long haul.

Finally, there’s that 8% dividend, which has held steady since AIO’s launch. Investors have picked up a couple of nice special dividends, too.

Source: Income Calendar

This, by the way, is yet another benefit of “oblique” CEFs: high (and often monthly paid) dividends you have zero hope of getting from a mainstream tech name like NVIDIA.

What Investors Get Wrong About CEF Fees (and Miss Out on 8%+ Yields)

Michael Foster, Investment Strategist
Updated: May 26, 2025

Plenty of investors miss out on the huge yields (often north of 8%) that closed-end funds (CEFs) offer. There’s one simple reason why: They get way too hung up on management fees.

We’re going to look at a few reasons why that is today—and one easy way you can make those fees disappear entirely.

But first, just how high are the fees we’re talking about? Well, the average fee for all CEFs tracked by my CEF Insider service is 2.95% of assets. In contrast, the largest ETF on the planet, the SPDR S&P 500 ETF Trust (SPY), has a fee of just 0.09%.

So, to be sure, we are talking about a big gap here.

But although CEFs’ fees are much higher, there are many reasons why we shouldn’t put too much weight on them when making buying decisions. Let’s talk about those now.

1. CEFs Let Us Diversify—and Get Smart, Active Management

SPY holds every stock in the S&P 500—in other words, the 500 large-cap companies that represent the biggest public firms in America. And while these stocks do well in good times, they can have rough runs, like we saw in April, for example.

That’s why we want to make sure we’re investing in assets beyond stocks, like corporate bonds. CEFs let us do that, and they give us access to smart human managers (not to mention high dividends), too.

An actual person at the helm is vital in a lot of these asset classes, and in particular corporate bonds, because deep connections are key to getting access to the best new issues.

We all know deep down that diversification works. But using CEFs to do it really can take things to another level, thanks in part to their high dividends. Look at the performance of the PGIM Global High Yield Fund (GHY), in purple below, since the start of 2025 to the time of this writing. GHY is a CEF Insider holding that yields an outsized 9.8%.

GHY Is the Poster Child For CEF Diversification

As you can see, GHY outran SPY (in orange) while diversifying its shareholders beyond stocks and the US, too. In addition, the bond CEF barely fell below breakeven in April, while stocks were down 15%.

And bear in mind, as well, that these numbers are net of fees. Speaking of which, GHY’s fees are far higher than those of SPY (1.5% of assets compared to 0.09%)

All that said, some CEFs do focus on S&P 500 companies, and still have higher fees, which brings me to my second point…

2. CEFs Have a Wide Range of Fees

GHY, as mentioned, has total expenses of 1.5%, better than the CEF average but still quite high. Compare that to the Nuveen S&P 500 Dynamic Overwrite Fund (SPXX), an S&P 500–focused CEF whose fees are much less, at 0.97%.

But wait, if SPXX is focused on US large caps, why are its fees around 10 times those of SPY? It’s largely because SPXX also sells call options on its holdings—or rights for investors to buy them at a fixed date and price in the future. The fund gets paid for these rights (and uses those fees to help fund its 7.7% dividend).

There’s some cost and work attached to that strategy, hence the higher fees. But it’s a small price to pay to get a dividend that’s nearly six times that of SPY.

3. CEFs Offer Higher Income

Currently, all CEFs covered by CEF Insider have an average yield of 9.1%, while SPY, as mentioned, yields 1.3%. In other words, a million dollars spread across all CEFs would get you over $90,000 in annual income, or $7,572 a month, versus less than $13,000, or about $1,075 monthly, from SPY.

Source: CEF Insider

This is why many investors use CEFs to fund an early, or partial, retirement; if it takes $682,286 in savings to replace the average paycheck in America (as measured by the Bureau of Labor cs’ median weekly earnings survey) CEFs but a staggering $4.8 million saved with SPY, you can see why CEFs could attract more attention—and thus, CEF issuers can charge higher fees.

4. CEF Discounts Can Make Your Fees Vanish

Now, here’s the kicker: CEFs have an unusual structure that means they often trade for less than their assets are actually worth.

Let’s say you have a CEF that has $100,000 spread across shares of NVIDIA (NVDA), Apple (AAPL) and Amazon.com (AMZN), among others, and the CEF has 10,000 shares in total. Each share is worth $10. Easy enough.

But CEFs are, as the name says, closed. That means CEF issuers can’t issue new shares to new investors, so all of the shares trade on the public market, like stocks, and their market prices fluctuate based on investor demand, sometimes diverging from the actual value of the underlying holdings.

If that demand is higher than the actual market value of the CEF, it’ll trade at a premium to its portfolio’s net asset value, or NAV; if lower, it’ll trade at a discount.

On average, CEFs trade at a 6% discount, according to CEF Insider data.

So if your CEF trades at a discount wider than its annual management fee, the discount can effectively offset the cost of that fee. And bear in mind that some CEFs are steeply discounted, with discounts of 10% or more.

It’s worth pointing out that the fees are taken out of the CEF’s portfolio by managers automatically as a matter of course; investors don’t have to mail off a check.

Let’s wrap with a quick recap, then: CEFs give you access to discounted, high-quality assets, far higher income than most ETFs, and they give you a high-income, low-cost way to diversify, too.

Plus, the best CEFs outperform their benchmarks—including the S&P 500. This is why CEFs are a passive income weapon that many wealthy investors are happy to keep in their arsenal.

As we just saw, most investors avoid CEFs because they think the fees are too high.

Big mistake. It means missing out on much higher yields than you’d get on garden-variety ETFs like SPY—often 7%, 8%, even 9%+. Plus, as we just discussed, many CEFs also trade at steep discounts that can cancel out those fees.