The Zweig Fund, Inc. (ZF): 3 High Yielders To Buy First After The ‘October Surprise’

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Not to mention you get to collect the dividend income from those stocks. But because you paid less for your shares, you’re effectively getting higher yields. So instead of collecting a 2.5% yield from Apple, you’re getting 2.87% ($12.20 per share dividend on $424 shares = 2.87% yield).

Now, that doesn’t automatically make The Zweig Fund, Inc. (NYSE:ZF) a buy. If for no other reason, overall total returns have been lackluster over the long haul.

With that in mind, I conducted a screen for funds with lofty 5%-plus yields, no leverage (and no exposure to rising rates) and double-digit discounts to NAV. I also looked for funds with superior performance whose trailing three-year returns outrun their respective benchmarks.

Here’s what I found:

The advantages of buying an income-paying fund at a double-digit discount are obvious, particularly when the stocks or bonds inside that portfolio are themselves undervalued.

If a quality fund that typically trades at a slight 1% to 2% discount suddenly slides to a 10% discount in a broad market pullback, there’s an opportunity. There’s usually a reversion to the mean. But don’t automatically assume that a discounted fund will close the NAV gap — some stay underwater for years, always showing somewhat of a discount. That’s why it’s more instructive to compare a fund’s current discount with its historical average.

But this list is a good starting point to conduct more research on whether one of these funds would make a good investment. And if Bernanke & Co. do indeed decide to taper the Fed’s bond purchasing program and the market takes a hit, which is very likely, these funds will be some of the first investments I’ll look at to buy on a pullback.

P.S. — As I mentioned earlier, I’m predicting an “October Surprise” in the market this year, and it’s all Ben Bernanke’s fault. Thanks to the Fed’s reckless monetary policy, this collapse could affect millions of investors — and anyone not prepared for it could lose a fortune. But I have a plan. To learn how I’m preparing for this collapse, read this special report.

– Nathan Slaughter

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