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Capture a 12% Yield with a Fund that Likes These Market Swings
By: Carla Pasternak
Editor
High-Yield Investing, High-Yield International
Published: September 15, 2008

Started in January 2007, the Nasdaq Premium Income and Growth Fund (Nasdaq: QQQX, $15.07) invests nearly all of its assets in a portfolio designed to track the Nasdaq-100 Index. This closed-end fund is managed by IQ Investment Advisors, which recently became a part of the Nuveen Group.

Unlike the more commonly known Nasdaq Composite, which lists more than 3,000 companies, the Nasdaq-100 comprises 100 of the largest domestic and international non-financial companies listed on the Nasdaq Exchange.

Since the June 2007 quarter, QQQX has distributed $0.4625 quarterly per share, or $1.85 a year. At current prices, the fund is yielding more than 12% ($1.85/$15.07). Management fees are a reasonable 1.05% annually.

While its key holdings are found in Nasdaq stocks, the fund also invests in stocks outside the index. As of June 30, 2008, for example, it held shares in Boeing (NYSE: BA). At that time, roughly 66% of its portfolio was invested in information technology, with another 16% devoted to healthcare. Apple (Nasdaq: AAPL) was its largest individual position and constituted more than 12% of the portfolio, with Microsoft (Nasdaq: MSFT) second at just over 6%.

To generate investment income for paying dividends, QQQX writes call options on the Nasdaq-100 Index. As of the latest quarter, the fund wrote options on approximately 45% of its $330 million portfolio. Since the fund owns underlying stocks that replicate the performance of the index, these calls are similar to covered calls written by individual investors who hold underlying positions. However, in QQQX's case, the stocks can not be called away since the calls are written on the index. Instead, the fund has to buy back the option at a higher price if the index goes up.

QQQX will do best in a Nasdaq bull market when it will profit on its investment positions. In a Nasdaq bear market, it will perform better when the implied volatility of Nasdaq-100 options is higher. Premiums for options rise with higher volatility, increasing the cash QQQX receives for each option contract it sells. The past several months have seen reasonably high volatility. As a result, the fund has held up relatively well, providing +1.3% returns in the second quarter ended June 30th, better than its benchmark's -0.9% decline and also well ahead of the broader S&P 500's -6.1% loss. QQQX has traded at a substantial discount to its net asset value over the past year, and the current discount of more than -10% is about in the middle of the discount range.

QQQX provides a potent combination of income and capital gains potential and is particularly well-suited to a Nasdaq bull market. At present, its yield of more than 12% may be attractive to patient value seekers who are willing to hold for the long term while the index puts in a bottom.
 

Good investing!



Carla Pasternak
Editor
High-Yield Investing

About High-Yield Investing

High-Yield Investing is a monthly investment newsletter that brings you a wealth of information on the market's leading income stocks and funds, as well as a host of relatively unknown investment options that you probably won't find coverage of anywhere else. Many of these securities provide investors with annual dividend yields of 10%, 15%, even 20% or more. The newsletter not only provides subscribers with investing ideas that produce incredibly high dividend yields, but the kicker is that these high-yield investments have also consistently outperformed the major market averages. (Learn More)

About Carla Pasternak

Editor of StreetAuthority.com's High-Yield Investing newsletter since its inception in May 2004, Carla Pasternak draws on a variety of financial backgrounds to make profitable calls on income-generating stocks for her readers.

Carla has been employed in the investment industry for more than two decades. In addition to her work as a writer for several nationally recognized financial publishers, her previous experience includes a position as president of a well-respected investor relations firm. She has also been writing shareholder reports for public companies since 1980.

A highly successful investment analyst, Carla specializes in high-yield, income-paying stocks. In that pursuit, she's always mindful to select companies that not only pay rich dividends, but that also deliver strong long-term capital gains. Furthermore, Carla's experience in writing SEC filings gives her the added insight required for her to truly understand a company's current and future financial health.

On the educational front, Carla holds BA, MA, MBA and Ph.D. degrees. When she's not watching the market, she's teaching business courses at the college level and managing millions of dollars in portfolio assets.

To learn more about Carla Pasternak's premium income investing newsletter -- High-Yield Investing -- please visit this link.


 

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