Invesco CEF Income Composite ETF

PCEF

Market cap $834M

With the changing of the calendar also comes myriad index rebalances for many popular funds and fund categories. The popular income ETF category offers current income to investors, from newbies to those on the cusp of retirement.

Invesco CEF Income Composite ETF holds 110 closed-end funds, offering high yield but average portfolio valuation and high expenses. PCEF has underperformed a custom CEF benchmark and key competitors in total return and risk-adjusted performance. Both share price and distributions have declined over the past decade, raising concerns for long-term income-focused investors.

TMX VettaFi is rapidly establishing itself as a key index partner, leveraging a strategy of product expansion and strategic acquisitions.

PCEF is a passive fund-of-funds ETF, mainly extracting dividends from closed-end funds. While PCEF offers decent long-term returns and yield, it lacks the active management needed to exploit CEF market inefficiencies. CEFS, an actively managed competitor, has significantly outperformed PCEF by leveraging activist strategies and capitalizing on CEF discounts.

Closed-end funds offer high dividends and liquidity, appealing to income investors, but require skillful timing due to NAV volatility. Invesco CEF Income Composite ETF provides diversified CEF exposure, balancing bonds and equity covered calls, with a 10% SEC yield. Saba Closed-End Funds ETF actively manages CEFs trading at a discount to NAV, offering a 9% yield and strong total returns.

On this week's episode of “ETF of the Week,” Chuck Jaffe of “Money Life” discussed the Invesco CEF Income Composite ETF (PCEF) with Roxanna Islam, head of sector and industry research at VettaFi. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF overall.

The Invesco CEF Income Composite ETF (PCEF), which celebrated its 15th anniversary last week is the oldest and largest ETF of closed-end funds. With close to $830 million in assets, it stands out as the only fund with the primary objective of benchmarking taxable closed-end funds. PCEF takes a broad view of the taxable closed-end fund market and invests in taxable investment-grade fixed income CEFs, taxable high yield fixed income CEFs, and equity option CEFs. PCEF gives a larger weight to holdings with wider discounts to net asset value (NAV). Buying CEFs at wider discounts has historically led to higher returns.

The Invesco CEF Income Composite ETF (PCEF), the oldest and largest ETF of closed-end funds, celebrated its 15th anniversary last week. With close to $830 million in assets, it stands out as the only fund with the primary objective of benchmarking taxable closed-end funds (which includes nearly all funds except municipal bond funds).

Closed-end funds offer unique opportunities due to their discount/premium mechanisms, allowing share prices to deviate from net asset value per share in a wild manner. In general, CEFs often provide diverse exposure across equity and fixed-income portfolios, and they even offer exposure to hybrid portfolios, but also allowing for sector-specific exposure. One important note is that not all premiums or discounts indicate a buying or selling opportunity; instead, it can make more sense to examine relative value over historical periods.

While most citizens in general are hurt by higher interest rates and their correspondingly higher product and service prices due to inflation, there is one demographic that seizes opportunity in those periods: income-oriented investors.