In this second of a two part series, I'm going over the vast majority of equity based, high yielding closed-end funds (CEFs), this time sorted by the smaller and often times, lesser known fund families. In part I of this series which you can read here, Part I, I went over most of the funds from the larger fund families, which included Nuveen, Eaton Vance, BlackRock, ING and Gabelli.
In this article, I'm focusing on the lesser known fund families and they are listed below in case you want to skip down to a particular fund sponsor...
- John Hancock
- Calamos Advisors
- Clough Capital
- First Trust Advisors
- Cohen & Steers
- Duff & Phelps
- Tekla Capital Management
- Alpine Woods Capital
- Wells Fargo
- Lazard Asset Management
- Legg Mason Partner Advisors
- Royce & Associates
- Madison Asset Managment
- Columbia Management
- Guggenheim Asset Management
The goal in this exercise is to point out the number of fund families that offer high yielding equity based CEFs since many income investors may be unaware of the diversity of funds available. Bear in mind however that this is not a complete list by any means or an in-depth analysis on the funds themselves. Many of these fund families also offer fixed-income bond CEFs in even greater numbers than equity CEFs.
Other funds I don't follow and thus do not include here are REITs, funds that invest predominantly in MLPs, funds that focus on a specific country or funds that have low yields that may not be of interest to income oriented investors. What's left is a potpourri of high yielding equity based funds that come in all shapes and sizes but yet rely on three basic income strategies to generate the income necessary to pay for their large distributions. They are the leveraged strategy, shown in orange, the option-income strategy, shown in light blue, and the dividend harvest strategy, shown in olive green. Funds which use an other strategy are shown in purple and many funds may use a combination of these income strategies.
The funds are shown in the following tables sorted by their year-to-date Net Asset Value (NAV) total return performances through June 5, 2013. Funds which have outperformed the S&P 500, as represented by the SPDR S&P 500 Trust (SPY), are shown in green and funds which have underperformed are shown in red.
Other notable columns include total return market price performances, premium/discount levels, market price yields and NAV yields. Note: Total Return means all distributions added back but not reinvested. SPY was up 13.7%, including dividends, as of June 5, 2013. Most quoted S&P 500 performances however do NOT include dividends.
The first fund family is from Allianz/PIMCO...
Allianz/PIMCO really should be included in the larger fund class but PIMCO, in particular, is more known for its fixed-income CEFs. (PGP) is the most controversial of the funds due to its high premium valuation, 46.7% as of June 5, 2013, which is actually down from an 80%+ premium a year ago when I first recommended a sell on the fund.
I recently wrote negatively about PGP again in an article just three weeks ago, Funds To Sell, and since that time, PGP has fallen from $23.86 to $21.20, still well over its $14.45 NAV. Based on valuations and NAV performances of all of the Allianz/PIMCO funds, the only two funds I continue to recommend from this group are (NIE) and (NGZ). NIE I'm very bullish on and still believe is overdue for a distribution increase in a continued up market. Should know this week when Allianz/PIMCO makes declarations.
The second fund family is from John Hancock...
John Hancock has one of the more popular funds currently, (BTO), which is a bank and thrift stock focused fund. However, I personally, would rather own (HTD), which is a leveraged (shown in orange) CEF whose portfolio is mostly utility stocks and preferred securities. Both utility stocks and preferred fixed-income have come under intense selling pressure recently and HTD is back down to where I would consider an attractive level around $19. Financial stocks may continue to benefit BTO for the time being, but I would not bet against HTD over the long run where it has proven to be one of the best performing funds through good times and bad. (HTY) is the only outright sell here at a 5.8% premium with no near the upside potential as HTD. The John Hancock funds all go ex-dividend June 11th.
The third fund family is from Calamos Advisors...
Calamos offers three leveraged stock funds with high portfolio exposure in high-yield corporate bonds and convertibles. I've liked (CHW) and (CSQ) ever since they raised distributions in early 2012, but pared back earlier this year when the discounts narrowed substantially and fixed-income came under pressure. I was even short CSQ for awhile when it traded close to a par valuation.
Recently though, I have been buying back CSQ, which has moved back down to an attractive -7.8% discount valuation with good NAV performance considering 42% of its portfolio is fixed income. CSQ includes mostly US based stocks for the balance of its portfolio whereas CHW and (CGO) are global stocks with much less US exposure. Though Calamos is not a well known name, all three of these funds are well managed and I particularly like their informative website. The Calamos funds are all monthly pay and go ex-dividend June 7th.
The fourth fund family is from Clough Capital...
Clough also has three leveraged funds that have mostly US based stock portfolios with some government and corporate bond exposure. What's unique about the Clough funds is that they short ETFs while leveraging up stock and bond positions. This means that they need to be able to pick stocks which will outperform the ETFs they are short or the strategy doesn't work very well.
To me, this would seem very difficult but so far this year, the Clough funds have been successful at this strategy and are narrowly trailing the S&P 500 at NAV and are outperforming at market price. However, the funds tend to trade at wide discounts because of that more complex investment strategy as well as their exceptionally high expense ratios. Because of leverage and being short ETFs, the Clough funds have expense ratios of between 3% to 3.5%. I don't own the funds but I have certainly been impressed with Clough's ability to navigate the long and short components of their investment strategy though I would imagine these funds would have to be much more actively managed than most.
The next fund family is from First Trust Advisors...
First Trust Advisors actually offers 14 CEFs, most of which are fixed income though several are equity based energy MLP funds which I don't follow. The three I keep an eye on are (FAV), (FFA) and (MFD) though I don't own any of them. I also don't really have an opinion on any of the First Trust funds but I will say that First Trust is probably the largest fund family that many income investors are not familiar with.
The next fund families all have two stock based high yielding funds that I follow but again, this does not mean these are the only two CEFs from these fund families.
The first is Cohen & Steers Capital Management...
Cohen & Steers offers 10 CEFs and is more known for its REIT CEFs. I follow two of their non-REIT funds, (UTF) and (INB), and I have been bullish on both for quite some time despite their subpar 2013 so far. UTF is a leveraged global utility and infrastructure fund with about 20% of its portfolio in preferreds. UTF was having a great year earlier this year until the bottom fell out on its utility based portfolio. Still, I like UTF at its current steep -10% discount though the fund can be quite volatile during times like these. INB has not had the kind of year I was expecting for a leveraged option-income fund. I went somewhat negative on INB on May 13th in this article, Funds To Sell, and had been selling the fund as it narrowed its discount to almost par. I would re-visit INB at a more normalized discount of around -7% to -8% rather than its current -3.8% discount.
Cohen & Steers also offers a fund of CEF funds approach with (FOF), which I don't follow either. Though this is a popular CEF in itself, I personally don't like the fund of funds approach due to overkill of diversification as well as paying two levels of management expenses.
Next is Duff & Phelps...
Duff & Phelps offers two leveraged global utility CEFs that have also gotten caught up in the utility selloff recently. I don't really have an opinion on either fund other than wondering why (DNP) gets to trade at a perpetual premium valuation when other utility based funds trade at discounts with similar strategies. I, for one, would rather own UTF at a -10.7% discount than DNP at a 12.2% premium.
Next is Tekla Capital Management, formerly known as Hambrecht & Quist...
For those who remember the boutique San Francisco investment banking firm of Hambrecht & Quist, these two healthcare CEFs have been around for quite some time. Both (HQH) and (HQL) are healthcare and life science funds which include public stocks and private equity in their investment portfolios. Both funds have had fantastic runs in both NAV and market prices over the last couple years, taking advantage of an outperforming healthcare sector. However these funds are not for the faint of heart and can be very volatile.
Next up are the Alpine funds...
For those who have followed my articles, I have been the most bearish on the two Alpine funds (AOD) and (AGD) since writing articles on Seeking Alpha. My biggest gripe was the fund's ridiculous premium valuations over the years when it was clear that the fund's dividend harvest income strategy was not working and was eroding away the life blood of the funds, their NAVs.
Now that new management has slashed the distributions to more manageable levels and implemented a revised income strategy, we'll see how the funds perform from here. I prefer to take a wait and see attitude. Alpine also offers a REIT CEF (AWP).
And next are the Wells Fargo Advantage funds...
Wells Fargo offers four CEFs, two which are fixed income based (EAD) and (ERC) and the two shown above which are equity based. I don't quite understand why the Wells Fargo funds trade at such high valuations either since their funds are rather unremarkable. In fact, (EOD), which is a global equity and preferred stock fund, has one of the worst total return NAV performances I follow and yet somehow can trade close to par to even a premium at times. That may be because even though EOD is an option-income fund, it also uses a dividend harvest strategy, which is an NAV destroyer. Not too many funds have decimated their NAV from $19.06 from when EOD went public in early 2007 to $8.22 currently. That's really all you need to know about how bad EOD has been even with those high distributions.
And finally, here are Lazard Asset Management funds...
I like the Lazard funds and you can't find a better name for international investing than Lazard. The two funds, (LGI) and (LOR), have mostly international stock exposure though the fund managers also use emerging market currency and debt instruments to add leverage to the funds. Both funds were having great years after raising their distributions in January but have since fallen back as the international markets turned defensive. At relatively low valuations, particularly LGI, the Lazard funds are attractive and are on a monthly pay cycle that goes ex-dividend June 10th.
There are several more fund families that include one equity based CEF that I follow and I have lumped them together in the following table...
First on the list is Legg Mason Partner Advisors. Legg Mason offers quite a number of CEFs, about 30, most of which are fixed-income bond funds managed under the Western Asset Management name. Legg Mason also has a few very popular energy MLP based CEFs operating under the ClearBridge management name. The only fund I follow, however, is (SCD) which is a leveraged diversified equity fund whose portfolio includes energy MLPs, REITs, convertible preferreds as well as stocks. SCD is having a great 2013 and is an excellent fund to own due to its diverse holdings though the fund can be quite volatile and it's sometimes best to wait until weakness in the broader markets widens SCD's discount. It goes ex-dividend June 19th.
Second on the list is Royce & Associates. Royce offers three equity CEFs, all of which are leveraged in small to mid-cap US stocks. The largest and most well known of the funds is (RVT) and it's the only one I follow though (RMT) as a micro-cap fund is also an interesting play. The Royce funds don't offer large yields, at least for a CEF, but instead offer superior appreciation potential at large discounts. The funds have all been around for many years and are well respected. All of the funds go ex-dividend June 12th.
Second on the list is Madison Asset Management. Madison offers two fairly small option-income CEFs and I really should follow both since I believe both funds are very undervalued, particularly if the US equity markets start to flatten out or show more modest gains. (MSP) and (MCN) (not shown) invest in mostly US stocks as well as about 20% of their portfolios in index ETFs like SPY and QQQ. With large windfall market yields of 8.7% to 8.9% due to their wide discounts, I think the Madison funds offer great value. MSP and MCN go ex-dividend June 14th.
Third up is Columbia Management which manages the (STK) fund. STK is a technology based stock fund that uses an option-income strategy selling options against 25% to 90% of the notional value of the holdings. Considering the fund went public at the end of 2009, I'm not at all impressed by its performance and the fund should probably cut its high distribution to help grow its NAV. At a narrow -2.5% discount, STK is very overvalued in my opinion.
And finally, 16. Guggenheim Asset Management. Guggenheim, along with Advent/Claymore, manages 12 CEFs, many of which are fixed-income based funds. Guggenheim manages three equity based funds that use both a leveraged income and option-income strategy. However, I currently only follow (GPM).
Guggenheim has an interesting strategy for its equity based funds in that they own ETFs rather than individual stocks. The only fund that owns individual stocks is their newest fund (GEQ), which went public in late 2011. The other funds, GPM and (GGE), leverage up diversified ETFs from the SPDR family and iShares family of funds and then sell call options against their ETF portfolios.
All three of these funds have exceptionally high yields of between 9.5% and 11% though I'm a bit concerned that those uber high yields take away from overall NAV performance and their market prices have generally performed much better than their NAVs YTD.
All of the fund families mentioned in this article maintain excellent websites if you want to investigate their funds further. In addition, I would encourage you to visit CEF Connect for additional information.
Additional disclosure: Short EOD