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Keeping Up with Exchange Traded Funds

Closed End Funds and the Yield Trap

closed end funds and the yield trapJason Zweig warns investors against chasing high yields offered by some closed end funds in the column High Yields Aren't Always a Good Thing.

Problem number one arises from the fact that the yields posted by the funds can include both income and return of capital.  Income, of course, is a good thing, but return of capital simply means that you are getting back a portion of what you have already paid for -- why get excited about that?

The second issue Zweig highlights is that investors are paying a premium over net asset value (NAV) for high yield funds. Turns out that 11 of the roughly 650 closed-ends tracked by Lipper Inc.

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