Closed-end funds (CEFs) aren’t nearly as well-known, nor well-held, as their more popular relatives: mutual funds and exchange-traded funds.
But that’s no reason to avoid them.
CEFs have acted as staples of income portfolios for decades. They can be held in virtually any brokerage account or IRA, often sport very attractive yields, and, if timed well, they can also generate solid trading returns.
If you can think of an asset class, chances are good there is a CEF trading it. Closed-end funds can hold stocks, corporate bonds, tax-free municipal bonds and virtually every other asset under the sun. In fact, they can even hold some illiquid assets that are difficult or impossible to own within traditional mutual and exchange-traded funds. Not to mention, CEFs boast a few unique advantages that its relatives don’t share.
What exactly is a closed-end fund, and how do you know what constitutes a good one? Today, I’ll break down this market niche, and then I’ll present you with the best CEFs for 2026—a group of products that yield 8.8% on average and yield up to 14.6%.
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Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
What Is a Closed-End Fund?
A closed-end fund, or CEF, is a type of investment fund that shares a number of core traits with its cousins: open-end mutual funds and exchange-traded funds (ETFs).
But what makes CEFs so special are a set of unique characteristics that in many ways allow them to behave a little differently from other fund types.
CEFs vs. mutual funds vs. ETFs
CEFs are best understood by comparing them to the competition.
You’re likely very familiar with open-end mutual funds: the investment vehicle of choice for 401(k)s and other retirement plans. But you might not understand how the sausage is made, so to speak. When you invest in an open end mutual fund, you (or your broker) sends cash to the fund, which the manager then uses to buy stocks, bonds or other securities. And when you redeem, the mutual fund manager will send you or your broker the cash, even selling securities to free it up if need be.
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Exchange-traded funds are different. Investors can buy or sell ETFs exactly as they would any stock. They trade on major stock exchanges. Unlike mutual funds, you don’t actually send the manager money; you buy shares from other investors. New ETF shares can be created or destroyed by institutional investors based on market demand. (When shares are created, an institutional investor will essentially buy up the shares of stocks and bonds owned by the ETF, then trade them to the fund for shares of the ETF itself. When shares are destroyed, the institutional investor receives the underlying holdings.) This creation and destruction of new ETF shares ensures that the ETF’s market price never deviates too far from the net asset value (NAV), or the value of the underlying holds.
And this brings us to CEFs.
Like open-end mutual funds and exchange-traded funds, closed-end funds are pooled investment vehicles. You have many investors pooling their assets into a common fund, which is invested by a manager or a team of managers. (And while mutual funds and ETFs can be index funds, which are rules-based and effectively run by computers, all CEFs are actively managed.) Unlike mutual funds—but like exchange-traded funds—closed-end funds trade on a stock exchange. You buy the shares in a brokerage account and never send the manager cash.
Because ETFs and CEFs don’t have to meet redemptions like open-end mutual funds, liquidity is less of an issue. They can hold thinly traded or illiquid securities without having to worry about selling them due to a wave of redemptions.
But unlike exchange-traded funds, closed-end funds have no creation or destruction of shares. A CEF actually holds an initial public offering (IPO) when it creates its shares, and that number of shares is fixed. That might sound like a mundane detail, but it’s actually one of the most important aspects of CEFs.
Why?
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Net asset value
Net asset value is the value of a fund’s net asset position (the value of the stocks, bonds, and other securities it owns minus any liabilities) divided by the number of shares outstanding.
Open-end mutual funds are always valued at their net asset value. And with exchange-traded funds, the shares’ net asset value will never deviate too much from the market price due to the creation and destruction mechanism. But because CEFs have no such mechanism, the market price of the shares can vary wildly from the net asset value. They can trade at large premiums to net assets or—benefiting us—at deep discounts.
Many closed-end fund investors prefer to buy CEFs when they are trading at deep discounts to net asset value. Why not? It’s intuitively appealing to buy that proverbial dollar for 95¢.
Leverage
Leverage is finance-speak for borrowing money to invest. This can boost returns, but it also increases risk. If you own a home, you know how this works. An increase or decrease in property value has an outsized impact on your home equity.
Closed-end funds will generally employ some amount of leverage. Leverage of between 20% and 40% is most common, but some CEFs will use less (or even none), and a handful use more. Of course, CEFs generally don’t “borrow on margin” like regular mom-and-pop investors. They generally have access to more sophisticated—and cheaper—funding options.
This leverage is a major reason that CEFs are able to generate some of the highest yields in the entire stock market. But it comes with risks. The same leverage that boosts returns when assets are rising compounds the losses when assets are falling. Furthermore, many CEFs tend to borrow at (normally) cheaper short-term rates and invest the proceeds in longer-term assets. That strategy is most profitable when the yield curve is steep (long-term rates are much higher than short-term rates), but it can be difficult to navigate when the yield curve is inverted (when short-term rates are higher than long-term rates), which was the case for a long stretch between July 2022 and October 2024.
When evaluating closed-end funds, you will want to take the leverage into consideration.
Distributions
The majority of closed-end funds are income funds. Whether they are fixed-income closed-end funds (bonds) or equity closed-end funds (stocks), chances are good that income is a major investment objective, and CEFs tend to offer high yields.
CEFs generally do not pay taxes at the fund level so long as they distribute 90% or more of their dividend and interest income, and 98% of their realized capital gains. This tax incentive is another factor in the outsized payouts we see in this space.
Closed-end funds’ payouts are referred to as distributions, and the yield on those distributions (the percentage of the fund’s price that the distribution represents) is called the distribution rate. CEF distributions usually come from some combination of four sources:
- Interest on fixed income or other interest-bearing securities
- Dividends from stocks
- Realized capital gains
- Return of capital
That last item needs a little explaining. A return of capital can be “constructive,” in that the proceeds represent unrealized capital gains and don’t erode the value of the fund. Or they can be “destructive” in that the fund is simply giving investors their own money back.
Even destructive return of capital isn’t necessarily destructive nor nefarious. CEFs will often smooth out their distributions to give their investors an even income stream, and sometimes this might mean distributing more than current earnings would support. If it is temporary, it’s generally not a problem. But keep an eye out for it. If return of capital makes up a large proportion of the CEF’s distribution, they might need to cut the distribution in the not-too-distant future.
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Taxation on distributions
The varied mix of income sources mean that your distributions will be taxed at different rates, all of which will be broken down on the 1099 you receive from your broker.
In the case of municipal bond CEFs, the vast majority of your distribution will be classified as tax-free. You would only have taxable income if the fund sold bonds and generated realized capital gains, in which case you would owe taxes at the short- or long-term capital gains tax rate. And any return of capital would lower your cost basis, thus setting you up for capital gains in the future when you eventually sell your shares.
For taxable CEFs, your distribution will be a mixture of dividends, ordinary income (interest) and short and long-term capital gains. As with tax-free muni funds, in the event of return of capital you will also have a lower cost basis, which will come into play when you eventually sell.
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Expenses
Exchange-traded funds (ETFs) are known for having the cheapest fees of the major investment fund types. They typically only charge an annual fee, and that fee is automatically taken out of the fund’s performance. That annual expense ratio tends to be not just generally low because so many ETFs are index-based, but relatively low—when a fund provider offers the same product in mutual fund and ETF form, the ETF version will almost always be cheaper.
Mutual funds tend to be more expensive because they’re more frequently actively managed, which means there’s at least one if not more managers who need to get paid for their services. But in addition to annual expenses, mutual funds sometimes levy sales charges and other additional fees. Sales charges (aka “loads”) can be particularly pernicious. A front-end load, for instance, will usually be some percent of your initial investment. Let’s say you invest $100,000 in a mutual fund with a 5% sales charge; $5,000 will be taken out of that initial investment at the get-go, which means it’s never invested in the first place.
Closed-end funds do have sales charges, but those typically only apply to people who buy a CEF’s shares during the initial public offering (IPO). If you simply buy existing shares through your brokerage, you’ll generally only pay the annual expense ratio. But CEF expense ratios tend to be higher than both ETFs and mutual funds. That’s in part because they’re actively managed, but also because they often include interest expenses related to the use of leverage. All fees listed for the funds I’ll discuss include interest expenses where applicable.
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The Best Closed-End Funds You Can Buy
Now that you know more about closed-end funds, let’s take a look at the best CEFs to buy in 2026.
As with any investment strategy, diversification is critical. So, we’re going to cover a variety of CEFs, including both equity closed-end funds and fixed-income closed-end funds.
1. Calamos Strategic Total Return
- Style: Moderately aggressive allocation
- Assets under management: $3.3 billion
- Distribution rate: 7.7%
- Distribution frequency: Monthly
- Expense ratio: 3.69%, or $36.90 per year on $1,000 invested
Let’s start with an “allocation fund” (aka balanced fund, aka portfolio in a can), which is just a fund that invests in both stocks and bonds, typically in some sort of predetermined range.
The Calamos Strategic Total Return (CSQ), for instance, is categorized by Morningstar as a “moderately aggressive allocation” fund, defined as having 70% to 85% of assets invested in equities, and the remainder invested in fixed income.
CSQ doesn’t always aim for that level—it actually only pledges to include “at least 50% in equities”—it’s close, currently, at two-thirds of assets invested in equities. And that stock exposure is similar to what you’d get from an S&P 500 or other large-cap fund right now: a lot of blue-chip names with a big emphasis on technology (roughly a third of assets). Top equity holdings right now include the likes of Nvidia (NVDA), Apple (AAPL), and Google parent Alphabet (GOOGL).
The CEF’s remaining assets are spread among a variety of fixed-income securities; predominantly convertible debt and high-yield corporate bonds, but also preferred stock, asset-backed securities (ABSes), and other issues.
Calamos Asset Management founder John Calamos and a team of advisers use a healthy heaping of debt leverage (roughly 30%). Leverage lets management to invest more than its actual assets in hand, which has a few effects. On the upside, it improves the fund’s yield and amplifies gains when the fund’s bonds grow in value. On the downside, it also amplifies losses.
So while CSQ’s portfolio has less stock exposure than a typical moderately aggressive allocation fund, that high leverage makes the fund more aggressive—and thus its performance is more volatile—than other mutual funds or ETFs in the category.
Calamos Strategic Total Return has historically performed in line with the S&P 500, with periods of outperformance on the way up, and underperformance on the way down. The fund finished less than 2 percentage points behind the S&P 500 in 2025, for instance. That’s saying something given that CSQ is a stock/bond portfolio while the S&P 500 is all equities.
In the meantime, you can buy shares at an 8% discount to NAV, which is very cheap relative to their five-year average discount of 1%.
Want to learn more about CSQ? Check out the Calamos Asset Management provider site.
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2. Pimco Dynamic Income Fund
- Style: Multisector bond
- Assets under management: $7.4 billion
- Distribution rate: 14.6%
- Distribution frequency: Monthly
- Expense ratio: 4.46%, or $44.60 per year on $1,000 invested
Bond yields surged higher for most of 2022 and 2023, which wreaked havoc on many fixed-income portfolios. (The math on bonds is simple: If bond yields go up, then prices come down, and vice versa.) But lower interest rates over the past couple of years have sent bond yields back to earth—and bond prices back to life.
What will happen in 2026? While many expect the Federal Reserve to continue easing in the coming year, it’s impossible to know how much farther the central bank will go, and for how much longer. For many, that might be reason enough to hand off the fixed-income allocation to a seasoned management team and let them figure it out.
And for that purpose, it’s hard to do better than Pimco Dynamic Income (PDI).
Pimco Dynamic Income is a “multisector” bond fund. Multisectors invest in all sorts of debt (obvious), and they typically invest a good deal of assets in bonds that either aren’t rated or rated below investment grade, aka junk (less obvious).
Unsurprisingly, PDI’s fund description screams “wide,” with the fund offering access “to Pimco’s best income-generating ideas across multiple global fixed income sectors” and investing in a portfolio of debt obligations and other income-producing securities of any type and credit quality, with varying maturities and related derivative instruments.”
Currently, managers Daniel Ivascyn, Alfred Murata, and Joshua Anderson have a roughly 70/30 blend of U.S. and global debt that’s thickest in high-yield corporate bonds (yet another term for junk) and non-agency mortgage securities. But it also owns non-U.S. developed-market debt, emerging-market debt, investment-grade bonds, commercial mortgage-backed securities, municipal bonds, and more.
A heavy tilt toward short- and moderate-term maturities lead to an overall effective maturity of 6.5 years. The portfolio has a duration (a measure of interest-rate risk) of 3.1 years, which in plain English means a 1-percentage-point rise in market interest rates would knock PDI lower by 3.1% in the short term, while a 1-point decline in rates would lift the fund by 3.1%. However, that duration is measured without accounting for leverage; PDI uses plenty of it, at 32% as I write this, which means the portfolio is going to be more volatile than the relatively low headline duration would indicate.
Still, Pimco Dynamic Income has performed in the top quartile of its peers or better across every meaningful time frame. And while the fund currently trades at 9% above its net asset value, that’s actually right in line with its five-year average premium. Meanwhile, its distribution is a sky-high 14%-plus.
Want to learn more about PDI? Check out the Pimco provider site.
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3. Eaton Vance Municipal Income Trust
- Style: Tax-free municipal bond
- Assets under management: $436.6 million
- Distribution rate: 5.6%
- Distribution frequency: Monthly
- Expense ratio: 2.46%, or $24.60 per year on $1,000 invested
Eaton Vance Municipal Income Trust (EVN) managers William Delahunty and Cynthia Clemson are tasked with building a tax-advantaged portfolio of municipal bonds—bonds issued by sub-federal entities including states, counties, and cities. For instance, tops among EVN’s 241 holdings are bonds from Miami-Dade County, Florida; the Alameda Corridor Transportation Authority in California; and Atlantic City, New Jersey.
Most of the portfolio is investment-grade in nature, though a little more than 10% is considered below investment-grade (aka “junk”), and another 15% isn’t rated by the major bureaus. (Note: Unrated bonds aren’t necessarily of low quality.)
EVN also utilizes a heavy amount of leverage, currently 31%, so you’re getting a more volatile munibond experience than you’d get from a traditional mutual fund or ETF.
As I mentioned before, one of the most important aspects of municipal bonds is the tax treatment. At current prices, EVN yields a tax-free 5.6%. If you’re in the 37% tax bracket, and you’re also paying the 3.8% federal net investment income tax (NIIT), you’d need to buy a taxable bond yielding 9.5% to get the same amount of after-tax yield that EVN provides!
A couple other things to note: Like many CEFs, Eaton Vance’s munibond fund is a monthly payer, not just quarterly. Also, EVN currently trades pretty close to its net asset value—a “fair” price in a bubble, but considering EVN has traded for a 7% discount on average over the past five years, it’s relatively more expensive than normal. But I’ll finish by adding it’s not unusual to have to pay up for high-quality funds.
Want to learn more about EVN? Check out the Eaton Vance provider site.
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4. General American Investors
- Style: Large-cap stock
- Assets under management: $1.7 billion
- Distribution rate: 10.3%
- Distribution frequency: Annually
- Expense ratio: 1.07%, or $10.70 per year on $1,000 invested
Let’s move on to equity CEFs.
General American Investors (GAM) is the type of fund you should own if you want traditional large-cap exposure in CEF format.
General American Investors, founded in 1927, is the oldest surviving CEF—a pretty straightforward and narrow fund that seeks out growth stocks trading at reasonable prices. President, CEO, and Portfolio Manager Jeffrey W. Priest has built a portfolio of roughly 65 predominantly large-cap stocks. Some top holdings, such as Microsoft (MSFT) and Berkshire Hathaway (BRK.B), you can find at the top of most large-cap index funds. But Priest has also put an emphasis on a few midsized and smaller large caps, such as waste disposal company Republic Services (RSG) and insurer Arch Capital (ARCH).
GAM uses a moderate amount of leverage (10% currently). Between that and the low-yield nature of its holdings, you might guess that a decent chunk of the fund’s yield comes from sources other than true dividends. Fortunately, these distributions are almost always long-term capital gains, so they’re tax-friendlier than many trade-happy large-cap CEFs.
That hardly does anything for its meager yield, but it has made some difference in the fund’s returns. Over the past 30 years, GAM has massively outperformed the S&P 500, by about 2,890% to 1,730%, on a total-return basis (price plus dividends).
General American Investors trades at a 11% discount to NAV, which appears steep at first glance. But that’s actually a little pricier than the 15% average discount across the past five years.
Want to learn more about GAM? Check out the General American Investors provider site.
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5. ClearBridge Energy Midstream Opportunity Fund
- Style: Energy infrastructure stock
- Assets under management: $1.1 billion
- Distribution rate: 8.4%
- Distribution frequency: Monthly
- Expense ratio: 3.22%, or $32.20 per year on $1,000 invested*
If you are looking for income, energy infrastructure should be one of the first places you look.
Oil-and-gas pipeline stocks offer some of the highest yields in the entire stock market. Some of this is due to their unique tax structure. Because of their high non-cash depreciation expenses, pipeline stocks tend to pay comparatively little in taxes. And the pipeline stocks organized as master limited partnerships (MLPs) pay no company income taxes at all so long as they distribute at least 90% of their profits as distributions.
One of the major downsides to owning MLPs is the tax reporting. The annual K-1 tax forms can be a real bear to deal with, even for experienced tax preparers. But this is where an MLP closed-end fund can really add value. You get a diversified basket of quality pipeline stocks without the tax hassle of owning the stocks outright.
There are several energy infrastructure funds out there, but ClearBridge Energy Midstream Opportunity Fund (EMO) looks like one of the best CEFs for 2026.
This Franklin Templeton fund, managed by ClearBridge Investments, owns a tight basket of 20 MLPs and corporate pipeline stocks, with the majority of the portfolio invested in diversified energy infrastructure. Leverage is moderate to high at about 20%.
America’s energy grid is in flux. Renewable energy sources like wind and solar have been gaining market share, but the current administration is doubling down on oil, and natural gas remains a critical and growing piece of the energy grid. That bodes well for funds like EMO, which is one of the best historical performers in its class, trades at a nearly 9% discount to NAV, and yields more than 8%.
* EMO’s listed expense currently is normal when compared to the other CEFs on this list. However, the fee will sometimes be listed as several times higher than that. This is common among funds that hold MLPs. Often, the lion’s share of that fee will be attributed to “income tax expenses,” which are an estimate of the potential tax expense (or benefit) that would occur if the fund recognized any unrealized gains or losses in the portfolio. This can vary widely from year to year and even day to day.
Want to learn more about EMO? Check out the Franklin Templeton provider site.
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6. Cohen & Steers REIT & Preferred Income Fund
- Style: REITs and preferred stock
- Assets under management: $1.1 billion
- Distribution rate: 7.5%
- Distribution frequency: Monthly
- Expense ratio: 3.78%, or $37.80 per year on $1,000 invested
Real estate investment trusts (REITs) have gone through some rough patches over the past few years. Because REITs have always had a major emphasis on income, investors have come to view them as a bond substitute. But when bond yields started to surge higher again in 2022, bond prices collapsed … and REIT prices fell in sympathy.
In 2024, however, when it appeared that bond yields had topped out, REITs mounted a strong recovery … only to flatline between late 2024 and the end of 2025 despite numerous interest-rate drops.
Where will REITs go from here? It’s possible REITs could do all right regardless of what bond yields do. If yields fall—and bond prices rise—then REIT prices should also benefit. If inflation proves to be stubborn and yields remain high, REITs should be in a better position than they were a year ago, as the rents they collect from tenants should also trend higher in line with inflation.
One way to play a recovery in REITs is via the Cohen & Steers REIT & Preferred Income Fund (RNP). The fund splits its assets between REIT common shares (the regular stock you and I usually own) and REIT preferred stock (high-yield “hybrid” securities that have features of both stocks and bonds). At the moment, top holdings include the likes of senior housing and medical property owner Welltower (WELL), datacenter specialist Digital Realty Trust (DLR), and infrastructure REIT American Tower (AMT).
If you believe that REITs are attractive, RNP is a solid option. It yields more than 7% at current prices thanks to a high 30% in leverage, and it trades at a modest 1% discount to NAV.
Want to learn more about RNP? Check out the Cohen & Steers provider site.
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7. BlackRock Enhanced Equity Dividend Trust
- Style: Equity options
- Assets under management: $1.8 billion
- Distribution rate: 7.7%
- Distribution frequency: Monthly
- Expense ratio: 0.88%, or $8.80 per year on $1,000 invested
Covered call writing has always been a popular strategy for income investors. In a covered call trade, you write—or sell—options against a stock position you own, collecting the option premium as income.
For example, let’s say you own 100 shares of Microsoft currently trading at $400. You could sell a call option that expires in a month at a strike price of $410. If, a month from now, Microsoft is trading below $410, great! The option expires worthless and you keep the premium from the original sale.
But let’s say that Microsoft enjoys a nice run and blasts higher to $420. What happens now? The person you sold the call option to has the right to buy the Microsoft shares from you for $410 per share. No problem. You missed out on a little upside, but you still sold at a profit and you still get to keep the premium from the option you sold. Not a bad deal!
If you’d like to have a pro handle all of this for you, consider the BlackRock Enhanced Equity Dividend Trust (BDJ). The fund holds a diversified basket of dividend paying stocks and then further enhances the income by writing covered calls on them.
At current prices, BDJ trades at a modest 3% discount to net asset value and yields nearly 8%.
Want to learn more about BDJ? Check out the BlackRock provider site.
Want to talk more about your financial goals or concerns? Our services include comprehensive financial planning, investment management, estate planning, taxes, and more! Schedule a call with Riley to discuss what you need, and what we can do for you.
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