5 Best CEFs This Month For Yields Up To 15% (June 2025)

For income investors, closed-end funds (CEFs) remain an exceptionally attractive investment class, offering exposure to various asset classes while promising high distributions and the potential for reasonable total returns. Unlike open-end mutual funds, CEFs issue a fixed number of shares that trade on exchanges, often at a premium or discount to their net asset value (NAV). This unique structure can present compelling opportunities for savvy investors.

While CEFs are generally characterized by higher volatility and deeper drawdowns than the broader market, making them unsuitable for every investor, their potential for outsized income generation cannot be overlooked. Their use of leverage, while amplifying returns, can also magnify losses during market downturns. Therefore, a thorough understanding of their mechanics and risks is crucial before investing.

In this monthly series, we meticulously highlight five CEFs with solid track records that not only pay high distributions but also offer "excess" discounts to their NAV. Our rigorous filtering process aims to separate the wheat from the chaff, selecting just five top-tier CEFs each month from a universe of approximately 500 closed-end funds. This process involves analyzing historical performance, management quality, distribution sustainability, discount/premium trends, and underlying portfolio composition.

Understanding CEF Discounts and Premiums

The trading price of a CEF can deviate significantly from its Net Asset Value (NAV). When a CEF trades below its NAV, it's said to be at a discount, potentially offering investors an opportunity to acquire assets for less than their market value. Conversely, trading above NAV indicates a premium. Our focus is on identifying CEFs with attractive discounts that we believe are unwarranted by their underlying fundamentals, suggesting potential for both capital appreciation as the discount narrows and continued high income.

Market Context and Investment Implications (June 2025)

As of June 2025, the broader market continues to navigate a complex landscape characterized by evolving interest rate expectations, geopolitical uncertainties, and sector-specific shifts. While inflation appears to be moderating, central banks remain vigilant, influencing bond yields and, consequently, the attractiveness of income-generating assets like CEFs. The current environment, with its blend of opportunities and risks, underscores the importance of selective investing within the CEF space.

For instance, the technology sector, exemplified by companies like Apple (AAPL), continues to demonstrate resilience and innovation. While AAPL itself is not a CEF, its performance and the broader tech market sentiment can indirectly influence CEFs that hold technology-related assets or are sensitive to overall market liquidity. Investors should consider how broader economic trends, such as consumer spending patterns and corporate earnings outlooks, might impact the underlying portfolios of their chosen CEFs.

Actionable Insights for Investors

1. Diversification is Key: Even within CEFs, diversify across different asset classes (e.g., equities, fixed income, real estate) and management styles to mitigate risk.
2. Analyze Distribution Sustainability: Don't just chase the highest yield. Investigate the source of distributions (e.g., income, capital gains, return of capital) to ensure sustainability.
3. Monitor Discount/Premium Trends: While a deep discount is attractive, understand the reasons behind it. A persistent, deep discount might signal underlying issues. Conversely, a narrowing discount can be a source of total return.
4. Understand Leverage: Most CEFs employ leverage to enhance returns. Be aware that leverage amplifies both gains and losses. Assess the fund's leverage ratio and its impact on risk.
5. Review Management and Fees: Experienced management teams with a strong track record are crucial. Also, be mindful of expense ratios, as high fees can erode returns over time.

Our selection process for June 2025 prioritizes CEFs that demonstrate a robust ability to generate consistent income, maintain a healthy discount to NAV, and possess a diversified portfolio resilient to market fluctuations. These funds are chosen for their potential to provide attractive yields while offering a margin of safety through their discounted valuations, making them compelling options for income-focused investors in the current market climate.