Guggenheim Enhanced Equity Strategy Fund is a closed-end fund trading on The New York Stock Exchange under the symbol GGE. It is a leveraged equity buy/write fund, which buys Exchange Traded Funds and sells calls against them. Covered calls are sold against every position it has.
In its fiscal year ending October 31, 2012, GGE did extremely well with a total market return of 25.22% and a return on et asset value of 13.99%. This is in comparison with the S&P 500 Index, which had a return of !3.21%. Please note that the magnified return in market value was obtained by the closing of the discount from net asset value from approximately 16% to 7%. As my opinions are well known, I would wait for the discount to once again rise before making a purchase of this CEF.
As of October 31, 2012, GGE had gross assets of $135,983,778 of which $40,000,000 was borrowed funds. GGE had approximately 1.1% of its assets in short-term near cash investments.
GGE has gone through substantial changes and has unrealized depreciation of $6,172,621 and long-term loss carryforwards of a whopping $661,471,730, which considering its size, GGE can never use up. If management wishes to use effectively this massive tax loss carry forward of which the bulk expires on October 31, 2016, it must consider taking corporate action. It would be a shame for this to go to waste.
The fund's current holdings are all ETFs and consist of the following:
|SPDR S & P 500||41.9%|
|SPDR Dow Jones Industrial Average||24.9|
|iShares Russell 2000 Index||19.3|
|Health Care Select Sector SPDR||5.0|
|Technology Select Sector SPDR||5.0|
|Industrial Select Sector SPDR||3.4|
|SPDR S & P Retail||0.5|
Calls are written against all positions and as of October 31, 2012 GGE had received premiums of $1,022,367 on calls that had a market value of $348,572.
Five-year key figures are not great, with high expenses and massive turnover. They are as follows:
|Borrowings in Thousands||$40,000||$26,000||$33,000||$30,000||-0-|
If a buy/write fund is going to get it right, it will be GGE. Currently it is doing exactly what it should do; buying broad baskets of ETFs and selling calls against them. The fact that the results are at best mediocre may point out a structural problem with all such funds. By definition, they are forced to part with their winners and keep their losers.
This is the fund to buy if you want a buy/write fund in your portfolio. I would simply allow the discount from net asset value to widen again, which I assure you, it will. I think buy/write funds are problematic in that you do sacrifice gain for a modicum of more income. You might be better off, simply keeping a portion of your portfolio in bonds and the balance in equities.
Disclosure: I am long GGE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.