The Rodney Dangerfield Of Closed-End Funds

| About: John Hancock (HTD)

Periodically, I run screens on the closed-end fund universe for different asset classes looking for funds with the highest three year Sharpe ratio.

The Sharpe ratio is commonly used to measure risk adjusted returns. It characterizes how well the return of an asset above a benchmark (the excess return) compensates an investor for the risk taken, where risk is measured by the standard deviation of the excess return.

If you screen the entire closed-end fund universe and sort by the three year Sharpe ratio, you will find only fixed income funds appearing at the top of the list because of their good three year performance and much lower standard deviation than equity funds. For purposes of this report, I wanted to focus only on US and international equity closed-end funds, so I eliminated fixed income funds or multi-asset funds which owned less than 40% in equities.

When I ran this screen last May, the highest rated US equity fund over the prior three years was John Hancock Tax-Advantaged Dividend Income Fund (NYSE:HTD). It had a three-year Sharpe ratio of 2.12. The S&P 500 index had a Sharpe ratio of only 1.21 over the same time period.

I just ran the screen today including international equity CEFs, and was surprised to find that HTD is still at the top of the heap. It has a three year Sharpe ratio of 1.54. The S&P 500 has a three year Sharpe ratio of only 0.74. A few international country funds in Thailand and Indonesia have had higher three year performance, but also have much higher volatility, so their three year Sharpe ratios are lower than HTD.

It many ways, HTD is the Rodney Dangerfield of closed-end funds ("I don't get no respect"). In spite of its consistently solid risk adjusted NAV performance, the current discount is -8.14%. Over the past five years, the discount has averaged -9.7%.

HTD is a US equity closed-end fund with about $783 million in assets under management. The fund seeks to provide a high after-tax total return from current income and capital appreciation by investing in dividend paying common and preferred stocks. HTD has been pumping out steady monthly distributions since its inception in 2004. It has a current distribution yield of 6.18%. But unlike most other CEFs that pay out large distributions, HTD is selling well above its original NAV. The NAV at inception was 19.10, while the current NAV is 20.75.

Under normal market conditions, HTD invests at least 80% of total assets in:

- Common stocks paying qualified dividends

- Preferred stocks paying qualified dividends

HTD offers two potential sources of tax-advantaged income where the top bracket over $400,000 is taxed at 20% and everyone else at 15%:

- qualified dividends or QDI

- capital gains

Along with the three year Sharpe ratio, take a look at the 5 year NAV total return which includes the 2008 bear market period:

S&P 500 annualized 5 year return= +3.85%

HTD annualized 5 year NAV return= +9.53%

John Hancock Tax-Managed Dividend Income is a US equity closed-end fund with about $720 million in assets under management. The fund seeks to provide a high after-tax total return from current income and capital appreciation by investing in dividend paying common and preferred stocks.

Top 5 Sector Breakdown as of Dec. 31, 2012











Asset mix as of Dec. 31, 2012


Allocation (%)

Common US Stocks


Preferred Stock


Foreign Stock


Cash & Cash Equiv


Corporate Bonds


Other swaps/options


Calendar Year NAV Performance (before taxes)



















John Hancock Tax Advantaged Dividend Income pays monthly

  • Ticker: HTD
  • Total Assets= $1.17 Billion Market Value= $783 Million
  • Annual Distribution (Market) Rate= 6.18%
  • Baseline Expense ratio= 1.19%
  • Discount to NAV= -8.14%
  • Average 52-week Discount= -7.31%
  • Portfolio Turnover rate= 12%
  • Average Daily Volume= 135,000
  • Average Dollar Volume= $2.56 Million
  • Effective Leverage: 33.55%
  • Current Monthly Distribution= $0.0985

Top Ten holdings on Dec. 31, 2012


Allocation (%)

Wells Fargo Pfd-J


OGE Energy


DTE Energy


CH Energy


Oneok, Inc.


Spectra Energy


Northeast Utilities


Atmos Energy


Amer. Elect. Power


Integrys Energy


Fund Management

HTD is managed by a team of portfolio managers at John Hancock Asset Management and Analytic Investors, LLC the Fund's sub advisers.

The current discount to NAV as of Feb. 1 is -8.14% which is slightly higher than the 52-week average discount of -7.31%. The 1-year discount Z-statistic is -0.63, which means that the current discount to NAV is about 0.5 standard deviations below the average discount over the last year.

The overall equity markets may be a bit overbought now, but HTD can act as a good long term core US equity holding in a portfolio. It is pretty liquid, has a low beta of 0.74 and can be bought fairly easily in larger amounts.

Disclosure: I am long HTD. 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.