What's a way to generate significant passive income that many investors don't know about? Closed-end funds (CEFs). They're similar to exchange-traded funds (ETFs) in that they trade like stocks on public exchanges. The main difference is that CEFs have a fixed number of shares whereas ETFs can issue new shares.
If you're an income investor, CEFs might be especially attractive. There are many funds from which to choose, but a few stand out to me. Investing $10,000 into each of these CEFs could make you over $4,700 in passive income in 2025.
1. AllianceBernstein Global High Income Fund
The "high income" in the AllianceBernstein Global High Income Fund's (AWF 0.91%) name isn't just marketing hype. This CEF offers a distribution yield of 6.9%. An initial investment of $10,000 in the fund should generate $690 in passive income this year based on that yield.
NYSE: AWF
Key Data Points
This CEF invests mainly in corporate debt securities. Most of its portfolio is in lower-rated corporate bonds (which generate higher yields), but the fund's holdings can also include investment-grade corporate bonds, government bonds, and other assets. The AllianceBernstein Global High Income Fund currently has 1,218 holdings.
2. BlackRock Debt Strategies Fund
The BlackRock Debt Strategies Fund (DSU 0.40%) pays an especially juicy distribution yield of 11.04%. If you bought $10,000 worth of the fund's shares, you'd likely receive income in the ballpark of $1,104 in 2025.
Instead of bonds, this CEF primarily invests in other corporate debt instruments -- mainly corporate loans. Some (although not all) of these loans are secured by assets pledged as collateral. This generally makes them safer to invest in than other types of corporate debt.
3. Cohen & Steers Infrastructure Fund
The Cohen & Steers Infrastructure Fund (UTF 1.60%) attempts to generate income by investing in stocks and debt issued by infrastructure companies. It currently has 252 holdings with top positions including five energy and utility stocks: NextEra Energy, NiSource, TC Energy, PPL, and Duke Energy.
NYSE: UTF
Key Data Points
This CEF's distribution yield stands at 7.63%. An initial investment of $10,000 should enable you to rake in around $763 in passive income this year.
4. DoubleLine Income Solutions Fund
The DoubleLine Income Solutions Fund (DSL 1.14%) has two goals: (1) provide a high level of income, and (2) deliver capital appreciation. It's definitely achieving the first goal these days with a distribution yield of 10.48%. Investing $10,000 in the CEF should give you income of roughly $1,048 in 2025.
This CEF is managed by Jeffrey Gundlach, who some call the "Bond King." Unsurprisingly, the fund invests primarily in bonds, most of which are below investment grade. The DoubleLine Income Solutions Fund's holdings also include asset-backed securities, bank loans, and collateralized loan obligations.
5. Pimco Dynamic Income Opportunities Fund
I've saved the biggest passive income generator for last. The Pimco Dynamic Income Opportunities Fund (PDO 0.86%) pays a distribution yield of 11.2%. Buying $10,000 worth of the fund's shares should make you $1,120 in income this year.
NYSE: PDO
Key Data Points
Like the DoubleLine Income Solutions Fund, the Pimco Dynamic Income Opportunities Fund focuses primarily on delivering income and secondarily on capital appreciation. This CEF's holdings include non-agency mortgages, U.S. government bonds, and high-yield credit assets.
Four things to know about these CEFs
Could investing $10,000 in each of the above CEFs really make you over $4,700 in passive income this year? Absolutely. However, there are four things income investors should know about them.
First, the actual amount of income you receive could be lower than $4,700. It's possible that one or more of these funds could reduce their distributions in the coming months. On the other hand, some or all of them could also increase their distributions.
Second, the share prices of these CEFs could be volatile. As is the case with investing in stocks and ETFs, investing in CEFs could entail losses. That said, several of these funds have delivered impressive total returns over the last year.
Third, unlike most ETFs, CEFs often use leverage. For example, the DoubleLine Income Solutions Fund's leverage from borrowing is 22.05%. The use of leverage can boost income generated but can also cause losses to be greater.
Fourth, these CEFs have greater annual expenses than many ETFs do. The funds' managers charge hefty fees for delivering such juicy distributions. For example, the BlackRock Debt Strategies Fund's gross expense ratio is 2.47%. The good news, though, is the yields discussed earlier are net of any expenses.
