- NAV performance, discount on NAV, and leverage constitute the three main parameters of my rule of thumb to select funds for a long-term CEF portfolio.
- I’m contemplating adding a fourth metric, Total Return, which is calculated based on the amount of distributions plus the change in a CEF’s NAV value.
- For the distributions to be sustainable, the Yield on NAV (the ratio between a fund’s distribution and its NAV), must be lower than the fund’s Total Return.
- My reviewed rule of thumb: “Choose a CEF with a positive NAV trend, the highest discount and the lowest leverage, whose Total Return is more than its Yield on NAV."
For further details see:
CEF Focus Investing: 'Everything You Always Wanted To Know About Total Return'