A 12% Yielding Fund of Funds That Sounds Better Than It Looks
Look To The Left Of The Equal Sign
Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
This past week, I got another email from a subscriber (keep sending them in if you have ideas!):
“I recommend you review the Amplify High Income ETF (YYY). This ETF owns closed-end funds with high discounts to NAV and adequate liquidity. This ETF has received an innovation award in the past.”
I originally covered this fund nearly two years ago, but that was just as high inflation was digging its heels in, the Fed was starting its ultra-aggressive rate hiking cycle and stocks & bonds were dropping by 20% in value at the same time. Clearly, the environment has changed since then, so it’s a good time to revisit. YYY is an interesting choice because as a fund-of-closed-end-funds, it gives investors the opportunity to take advantage of the high yields of CEFs without having to pick and choose individual funds themselves. This is probably one of those cases where having a manager do the work for you makes some sense, but we have to examine the strategy, composition and environment of YYY to make a final determination.
Fund Background
As mentioned, YYY is a fund-of-funds that tracks the investment results of the ISE High Income Index. It tracks the performance of the top 45 listed closed-end funds as selected and ranked according to factors designed to result in a portfolio that produces high current income.
After applying some standard market cap and liquidity screens, each eligible constituent is then ranked and ordered according to the fund’s yield (higher being better), share price premium/discount to NAV (a larger discount is better) and average daily value of shares traded over the 6-month period prior to the index rebalancing date (higher shares traded is better).
A combined rank score for each eligible constituent is then calculated and constituents are ranked from lowest to highest. The top 45 ranked funds are then included in the index. Components with higher rank scores receive greater weights in the index with no components receiving more than a 3% weight. YYY has historically maintained an allocation of 80% fixed income and 20% equity.
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