Yield-Hungry Investors Got Burned

In the quest to find the perfect investment, value investors look to pay $0.50 for a dollar's worth of assets. With many closed-end funds, however, buyers who are desperate to find high-yielding investments are doing exactly the opposite -- and sometimes, they end up paying the consequences. The Barron's article this past weekend looked at closed-end funds that pay extremely high yields.

Using a combination of leverage and high-yield bonds, Pimco High Income (NYSE: PHK) has paid shareholders distributions that amount to about 12% of its current share price over the past year. But as the article noted, the prevailing share price was a full 70% higher than the fund's net asset value. Hunger for income likely drove shares to the huge premium to NAV, but the article did a good job of collapsing the share price. Shares have lost 15% this week alone, still leaving the fund trading at a steep 40% premium. Several similar funds that the article mentioned have seen similar drops.

Source: Motley Fool

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