When facts change, so must my opinion. I was critical of governance at Macquarie Global Infrastructure Total Return Fund (MGU) last June. Investors don't expect swift changes from diversified global infrastructure vehicles like MGU or the iShare, S&P Global Infrastructure Index Fund (IGF). Much has changed in ten months though. When facts change, so must my opinion. Looking forward, MGU's attributes make it significantly more attractive for long term investors than IGF. Its much more than the new yield and recent performance. Excess supply has been removed, which the market is not reflecting.
What is the Asset Class?
As "Global Infrastructure" funds, MGU and IGF are alternate choices for yield-oriented investors who desire Energy, Industrials, and Utilities exposure both in the US and abroad. At Wednesday's closing prices, MGU yields 6% and IGF 3.86%. MGU trades at roughly a 10% discount to its Net Asset Value ("NAV") and is among the universe of leveraged Closed End Funds ("CEFs"). IGF is an Exchange Traded Fund ("ETF").
What changed at MGU?
MGU has significantly mitigated excess supply in its shares through NAV-accretive tender offers. Most recently, MGU retired 10% of its outstanding shares at 92% of NAV on April 5th. Obviously, MGUs NAV outperformed on the retirement. More importantly, close to half of what selling shareholders (at a price better than market) were willing to sell were retired. Impressive considering this second tender was smaller than the November tender which had already retired 20% of shares outstanding. CEFs trade on supply and demand. Reducing an oversupply of shares could prove highly relevant to future market pricing prospects.
While accreting NAV through tenders, MGU also increased its yield. MGU has twice announced new increases to its quarterly distribution since my article ten months ago. Its most recent quarterly distribution (March) of 32 cents per share literally doubled the 16 cent paid three years prior.
Portfolio and Performance
MGU's annual report highlights recent outperformance over IGFs index in its leading "stockholder letter". For the year ended November 2012, the NAV return of 18.89% and Market Return of 22.85% both crushed the 8.83% put up by the index IGF seeks to mirror.
Past performance, on any basis is no crystal ball for future performance in my humble opinion. MGU may over or underperform its index in any given period. Its largest holding is the same as that of IGF: Transurban Group (TCL). With leverage attributes (26.9% in 2012), MGU has an intrinsic advantage in bull markets such as that of 2012, and conversely a disadvantage in bear markets.
My choice to own MGU (and not IGF) is in no way conditioned by specific expectations for active management.
What does the future hold?
I don't claim to know whether (or how long) the Global Infrastructure asset class might be in vogue in a yield hungry environment. MGU market performance will be affected by the widening or narrowing of its current discount and the relative performance of its active management as well.
What appears clear is that MGU has new, organic reasons for being wanted among typical long term investors. Today's buyers don't need to be savvy enough to evaluate tender offers to get a superior yield over IGF, or to buy it around 90 cents per dollar of NAV. In today's CEF landscape, a 10% discount is generally attractive, particularly in the absence of the large supply overhangs commonly present among such discounted funds.
MGU will at some point be transferred out of or liquidated from the account which provides Covestor with licensed data for "Well Intentioned Activism Profile CEFs". I expect MGU will be a holding in the "L/S Opportunistic", "Core Total Return", and "Taxable Income" model feed accounts for the foreseeable future. Among the universe of CEFs, MGU is now among the most organically favorable options.