Balancing Risk and Return in Closed-End Funds: ECF and Preferred Stock

This article explores closed-end funds (ECFs) with high credit ratings and stable income that offer a balance between risk and return. The author co-authored the article with Strategic Yield and aims to provide insights into ECFs that meet specific criteria.

Closed-end funds (ECFs) have long been a staple in the investment portfolio of many investors seeking a balance between risk and return. These funds, characterized by their stable income and high credit ratings, offer a compelling investment opportunity. This article explores two notable ECFs that meet these criteria: Ellsworth Growth and Income Fund (NYSE:ECF) and TPG Telecom (ASX:TPG).

Ellsworth Growth and Income Fund (NYSE:ECF) is a well-established fund with a strong track record. Founded in 1986, ECF boasts a robust portfolio of approximately 92 holdings, with significant investments in technology and energy sectors. Moody's rates ECF with an "A1" credit rating, indicating a high level of creditworthiness. As of the end of the second quarter of 2025, the fund's total assets stood at around $187 million, with 14 million outstanding shares [1].

ECF's preferred stock, ECF.PR.A, is a notable feature of the fund. Trading below par at a market price of $21.44, this preferred stock offers a current yield of 6.17%. Although it lacks an official credit rating, its association with ECF's "A1" rating suggests a comparable "A3" rating, making it suitable for more conservative investors [1].

TPG Telecom (ASX:TPG), a leading telecommunications company in Australia, has recently announced a significant shareholder return program. Following the sale of its fibre network and fixed business to Vocus Group for $5.25 billion, TPG is set to return up to $3 billion to shareholders. The company plans to distribute these proceeds through a pro-rata capital reduction of up to $1.61 per share, contingent upon shareholder approval at an extraordinary general meeting in early October [2].

TPG's strategic shareholders, representing 77% of ownership, have expressed support for the capital return and reinvestment initiatives. This move aims to reduce TPG's borrowings to around $1.7 billion, maintaining the fiscal year 2025 dividend at 18¢ per share. CEO Inaki Berroeta emphasizes that this financial restructuring positions TPG as a lean, mobile-led integrated telco, poised for further growth in the mobile and home internet markets [2].

In conclusion, both ECF and TPG Telecom demonstrate the potential for balanced risk and return. ECF's high credit rating and stable income, coupled with its preferred stock's attractive yield, make it an appealing choice for investors seeking a conservative income strategy. TPG's shareholder return program, driven by a significant asset sale, highlights the company's commitment to returning capital to shareholders while positioning itself for future growth. Investors should carefully evaluate these opportunities based on their risk tolerance and investment objectives.

References:
[1] https://seekingalpha.com/article/4811660-looking-for-balance-between-risk-return-ecf-and-preferred-stock
[2] https://www.sharecafe.com.au/2025/08/05/tpg-telecom-announces-3-billion-shareholder-return/