Hey, this is Tim Melvin!
Welcome to Underground Income. I’m incredibly excited you’ve joined me as we’re going to accomplish a lot.
The key to our service is simple:
Find dividend-paying closed-end funds trading at 10-20% discounts, which have a high probability of going up in value.
As a part of your journey with Underground Income, I’ll be here guiding you on the basic principles of closed-end fund investing…
As well as regularly releasing videos, having monthly calls, sending you trade alerts and more… all so you can do very, very well with my service.
We’re not swinging for the fences here.
I’ll use a lot of baseball slang in honor of my Baltimore Orioles, but essentially Underground Income goes for singles and doubles.
We’re not betting the house on any big plays.
We want to compound over time.
You will do that by following my closed-end fund strategy:
#1. Our closed-end fund pays dividends and trades at a discount
#2. Our closed-end fund has tailwinds and growing
#3. Our closed-end fund is seeing Activist investor activity.
Activist investors are folks like Elon Musk in the case of Twitter. Elon felt he could do better managing the company, so he buys a large stake in the company. All in an effort to persuade the board and/or shareholders to do his bidding.
Activist investors usually target closed-end funds who are trading at large discount gaps.
Carl Icahn made a fortune doing this when he started in the 70s and 80s.
If they can gain influence, they could force the hand of the fund manager to either:
- Liquidate the closed-end fund completely
- Merge the closed-end fund
- Convert the closed-end fund into an “open-ended” fund (like a mutual fund)
The Activist investor may even simply draw enough interest to raise the value of the fund up to close the discount gaps.
That would give them a profit they can take off the table and move on from.
That’s where we pick up with my #1 closed-end fund.
#1 Closed-End Fund
Kayne Anderson Next Gen Fund
TICKER: KMF
As of the second quarter of 2022, energy prices are hitting 10-year record highs. Gas is hitting highs.
Some closed-end funds invest in just oil… or just renewables.
Kayne Anderson invests in both.
They invest in oil… they also invest in solar, winds, and renewables which are also hitting records in the US.
According to Kayne’s website:
- Investments focused on “NextGen” Energy Companies and Infrastructure Companies that are meaningfully participating in, or benefiting from, the “Energy Transition” mega-trend.
- Energy Transition is the global shift to a more sustainable mix of lower carbon and renewable energy sources aimed at reducing emissions of carbon dioxide and other greenhouse gasses.
- Portfolio comprised of a diversified mix of energy infrastructure companies, including renewable infrastructure, natural gas midstream, and utilities.
- Renewable infrastructure companies and utilities have many attractive attributes, including lower volatility and correlation to the broader equity markets, contracted/regulated cash flows, multi-year growth visibility, and attractive ESG characteristics.
Highlights relevant to your portfolio:
- Only reports taxes using the simpler 1099 form (no K1)
- You can buy it in your IRA
- Pays dividends yielding 7.6% (as of 2Q 2022)
Investments inside the closed-end fund
You’ll find an assortment of oil stocks, like Targa Resources and Cheniere…
But also some renewables like Brookfield Renewable Partners.
Catalysts to see double-digit growth
#1. The fund pays a dividend at 7.6% as of 2Q 2022
#2. KMF trades at an 18% discount to its net asset value (i.e. what the underlying stocks are actually worth).
#3. Energy is seeing massive tailwinds while other industries, e.g. tech, collapses.
#4. Activists are circling the fund.
Right now, Activist investors Rivernorth, Mattise, Saba, and Guggenheim have all bought shares.
They haven’t reached a level yet where they’re legally required to file 13Ds with the SEC yet.
But, once those filings happen, I expect things to move fast for KMF.
This is what happened recently after Activist investors filed with the SEC that they had invested in other closed-end funds.
| TICKER | YIELD | PROFIT AFTER FILING |
| SMM | 6% dividend | 38% gain in 3 months |
| CEN | 7% dividend | 43% gain in 4 months |
| IRL | 8% dividend | 40% gain in 8 months |
| GFY | 2%+ dividend | 28% gain in 6 months |
| NDP | 8% dividend | 93% gain in 6 months |
| PEO | 8% dividend | 122% gain in 8 months |
These returns happened in as little as 3 months.
I’m not promising these returns, just showing you the potential of what could happen down the line.
That’s our goal:
- Collect high dividends for cashflow
- Enjoy double-digit profits after the Activist investors make their move
RECOMMENDATION: Buy KMF, paying up to $20 per share
Bonus Closed-End Fund Pick
Adams Natural Resources
Ticker: PEO
Adams Natural Resources invests in energy and materials.
They’re heavily weighted to oil and midstreams, which is a bit riskier, but also a great opportunity to ride the rapid rising oil prices.
Here’s their current portfolio:
Many big names in there – Exxon, Chevron, Marathon, Occidental.
Currently, it pays around a 2% dividend and trades around a 14% discount.
Meaning, we can make money:
#1. From our dividends
#2. The discount gap closing
#3. Tailwinds in the energy field
#4. Activist investors making a move in the space
Much like KMF, Adams has seen Activists investors take small positions, but none big enough to trigger the SEC filings yet.
However, I see that coming very soon.
RECOMMENDATION: Buy PEO, paying up to $30 per share
I definitely recommend adding KMF to your portfolio, with PEO as a secondary pick.
We’ll be adding 1-2x plays just like these every single month inside Underground Income.