Invesco Powershares has launched an exchange-traded fund (ETF), the CEF Income Composite Portfolio (PCEF), which tracks yield-oriented, closed-end funds, based on the S-Network Composite Closed-End Fund Index (CEFX).
The fund, which will issue monthly distributions, is expected to go ex-dividend on March 15, 2010.
The index currently tracks 70 closed-end funds traded in the U.S., of which 27 invest primarily in taxable investment-grade fixed-income securities, 15 invest primarily in high-yield fixed-income securities and 29 primarily use an equity option writing strategy.
The ETF’s management fee is 50 basis points, but when you factor in the expense ratios of the underlying funds, the ETF’s total expense ratio rockets to 181 basis points. The average expense ratio for an ETF is 56 basis points, according to Morningstar.
However, Paul Mazzilli, senior advisor of S-Network and chief architect of the CEFX index, says that the PCEF has advantages over other invesment vehicles that justifies the lofty fee. “The index is designed to be well-diversified by asset class and is managed by a whole bunch of different teams; the 70 funds own between 80 and 230 different securities at any time so they’re very broadly diversified and pretty uncorrelated with traditional holdings; and we picked the funds with the highest yield, which are paid monthly; and the underlying funds are very tax-efficient,” he says.
The current dividend yield of the index is approximately 8.5% per annum and the weighted share price discount to net asset value is 4.5%.