Boulder Total Return's 20% Discount To NAV Makes It A CEF Worth Holding

| About: Boulder Growth (BIF)

Boulder Total Return Fund is traded on the New York Stock Exchange under the symbol BTF. It is part of a group of closed end funds that are managed and controlled by the Horejsi family, which owns 42.15% of the outstanding shares. I am fine investing side by side with managers who also invest in their own funds.

As of February 19, 2013, BTF was selling at a 20.61% discount from net asset value. This is within the range of its discount. It usually sells at a substantial discount from net asset value. The discount can be attributed to the following facts:

1. This is not a balanced portfolio but in fact an opportunistic fund with the bulk of its assets invested in Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B);

2. There is very substantial unrealized appreciation, which if realized can result in substantial capital gains liability; and

3. As one group of shareholders own almost half the stock, it is an inactively traded security offering liquidity issues to any other substantial shareholder.

As of November 30, 2012, the five largest holdings of BTF were as follows:

Berkshire Hathaway 37.6%
Yum! Brands 18.0%
Wal Mart 8.0%
Johnson & Johnson 4.3%
JP Morgan Chase 4.2%

As of November 20, 2012, BTF had gross assets of $350,117,353 of which $68,041,706 with taxable auction market preferred stock. Short term investments were 0.2% of the portfolio.

The potential tax liability, which is very substantial, consists of the following:

Undistributed ordinary Income

$ 199,828

Accumulated Capital Losses (12,381,094)
Unrealized Appreciation 171,012,906
Timing Differences (108,837)
Total: 158,722,803

Although BTF has started waiving part of its fees, expenses have been a little on the high side and because of the leverage, there is little net income. Turnover has been extremely low. I will show five years' figures excluding the waiver, which are as follows:

Operating Expenses Income Portfolio Turnover
2012 2.03% (0.41%) 10%
2011 2.12 0.18 03
2010 2.19 0.13 06
2009 2.53 0.22 12
2008 2.22 (0.70) 06

BTF isn't very suitable to those investors seeking to invest in one fund for a balanced portfolio. This is anything but a balanced portfolio. BTF makes large bets on companies they like. These companies seem to be fairly conservative large cap liquid companies.

BTF is also a cheap way to invest in Berkshire Hathaway. The fund has obviously made long term investments in quality companies and its substantial accumulated capital gains may not be realized for many years to come. BTF is a worthwhile investment if included in a basket of other funds. I have written about BTF previously. I continue to like this fund.

Disclosure: I am long BTF. 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.

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