7 Investments on Sale for the Holidays

by Anthony Summers, Senior Research Analyst, The Oxford Club

Well, it’s finally December... and what better way to start the holiday season than with a sale.

On what, you ask? That’s the focus of this week’s chart.

Let’s start with a quick run-through on a simple, yet highly profitable trading strategy. One that’s based on buying funds at a significant discount to their true value.

For the average mutual fund investor, there are two types of funds: open-end and closed-end. An open-end fund is one where there is no cap on the number of shares that can be issued.

If investors are willing to buy, the fund will issue more shares. The price of those shares are based on the net asset value (NAV) of the fund’s underlying assets - not supply and demand for the fund.

Closed-end funds work differently. The number of shares are limited. That means the fund will not issue new shares for you to buy. In order to purchase shares, another investor must be willing to sell.

Why does this matter?

Since the price of closed-end funds are not strictly tied to NAV, they end up trading much like regular stocks on the market - moving on supply and demand. And as we know, those powerful forces can often move prices wildly.

When the price of a closed-end fund is above its NAV, it’s trading at a premium. When the price is below the NAV, it’s trading at a discount.

Buying discounted closed-end funds is a unique opportunity to make sizable profits. In a sense, it’s like buying a basket of stocks for less than their total market value.

Imagine buying a basket of stocks that, put together, is worth $100... for just $85.

It’s common for closed-end funds to trade at small discounts when investors believe underlying shares may fall... perhaps 2% or 3% below their NAV. But on special occasions, you can find some real treasures, like the funds in today’s chart.

All of these funds are trading at a double-digit discount to their respective NAVs. They’ve also displayed positive year-to-date performance.

What makes this strategy great is not just the increased profit potential. You also dramatically reduce your market risk by buying stocks below NAV.

Plus, a few of these funds offer some very impressive distribution rates at current prices.

Royce Value Trust Inc. (NYSE: RVT), Liberty All-Star Equity Fund (NYSE: USA) and Voya Global Advantage and Premium Opportunity Fund (NYSE: IGA) all offer distribution rates of 7.23%, 9.44% and 11.43% respectively.

If you’re an income-focused investor, consider adding these “holiday deals” to your portfolio today.

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