3 Closed End Fund Swaps: Avoid Paying Significant Premiums To NAV

Includes: AWF, ESD, GHI, GLU, GUT, KMM


This article highlights three closed-end funds trading at significant premiums to net asset value (NYSE:NAV): Gabelli Utility Trust (NYSE:GUT), DWS Multi-Market Income Trust (NYSE:KMM), and Alliance Bernstein Global High Income Fund (NYSE:AWF). As of market close April 22, each of these funds trade at premiums between 5% and 15% to NAV. An alternative closed end fund with similar portfolio holdings is proposed for each of the three which trades at a more appealing discount/premium profile.

Swap #1 GLU for GUT

GUT closed at $6.95 per share on April 22. The NAV at this time was $6.05, which represents a 14.9% premium to NAV. GUT pays out a monthly dividend of $0.10 per share, which represents an annual yield on price of 8.6%. The top five holdings of GUT are all utilities, which include: Northeast Utilities (NU), ONEOK (NYSE:OKE), Westar Energy (NYSE:WR), Duke Energy (NYSE:DUK), and National Fuel Gas Company (NYSE:NFG).

Gabelli Global Utility & Income Trust (NYSEMKT:GLU) trades at a premium of just 0.5% as of the April 22 market close. Over the last month, GLU has traded at a discount of 2.5% to NAV. The portfolio holdings of GLU are similar to GUT - all of GUT's top 5 holdings show up in GLU's portfolio as well. While an investor will be giving up some yield in going to GLU (GLU has an annual yield of 5.4%), the price to NAV is much more attractive.

Swap #2 ESD for KMM

DWS Multi-Market Income Trust closed on April 22 at $11.91 per share, which is 14.5% above its NAV. Over the last month, KMM has traded at an average premium near 7%. KMM pays a monthly dividend of $0.077 per share with an annual yield of 7.8%. KMM's top holdings include government debt from Russia, Poland, Croatia, and Panama as well as corporate debt of Community Health Systems and HCA.

One proposed trade is to move out of KMM and in to Western Asset Emerging Markets Debt Fund (NYSE:ESD). Similar to KMM, ESD owns debt of the following countries: Russia, Panama, and Poland. The remainder of their holdings, as the name of the fund suggests, are in emerging markets. ESD closed at a price of $21.31 per share, which represents a 3.2% discount to NAV. ESD pays a monthly dividend of $0.12 per share for an annualized yield of 6.8%. In executing this position swap, one is going from a premium of 14.5% to a discount of 3.2%.

Swap #3 GHI for AWF

Alliance Bernstein Global High Income Fund had an April 22 closing price of $16.54 per share, which is about 5% above its NAV. AWF top holdings include debt from Argentina, Turkey, El Salvador, the United States, and the Dominican Republic. AWF pays a monthly dividend of $0.10 per share which represents an annual yield of 7.3%.

A fund with similar holdings, but trades at a discount to NAV is the Global High Income Fund (NYSE:GHI). GHI's top holdings include sovereign debt from Russia, Poland, Turkey, Thailand, and the United States. Unlike with AWF, over the last month GHI has traded near a 5% discount to NAV. After the April 22 market close, GHI had a closing price of $12.70 per share at a discount of 5.9% to NAV. GHI pays a monthly dividend of $0.0785 per for an annual yield of 7.4%. In swapping AWF for GHI, you can achieve a greater yield and buy a fund at a discount to NAV.


AWF, KMM, and GUT are three closed-end funds which trade at a significant premium to NAV. Further, the April 22 closing price premium to NAV is significantly greater than the last month's average premium for each of these three funds. Should "reversion to the mean" occur, significant stock price decreases are possible even if little change in NAV occurs. For this reason, three trades are proposed which highlights funds trading at slight discounts to NAV.

Disclosure: I am long GHI, GLU. 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.