Cornerstone CEFs: What's In A Return?

Sometimes when I do TV (especially in the early mornings) I can trip over a word -- or because of tight timing can't get the entire story out. That's what happened today on CNBC's Squawk Box when I intended to mention the Cornerstone Total Return (CRF) and Cornerstone Strategic Value (CLM) closed-end funds.

Both are no stranger to readers of my column, which have been red flagged because of their big returns OF capital and huge premiums to their net asset values. This morning I am told I said Cornerstone Strategic Value when I was thinking Cornerstone Total Return. Both trade at the highest premiums to their NAVs of any closed-end fund: CRF's is 94%; CLM's, 54%, according to ETF Connect. And both, with sagging NAVs, tout big and regular payouts.

The regularity and predictability of their payouts has been a big part of their story. Trouble is that because of subpar investment performance most of the payout for many quarters has come from money paid in by investors -- their original investment -- not from investment gains. "They both remind me of a guy walking around with a 400 cholesterol level," says one reader "At 60% and 90% premiums to NAV, when you buy them you are paying $68 for GE, $129 for JNJ, $53 for MSFT, $133 for XOM etc, among their largest holdings. Then you borrow money to pay the dividend. WOW."

The beat goes on...

Comments

[WC Whiner:]

CRF and CLM have a new competitor in the insensate-premium sweepstakes: CUBA. Traders have been pushing the reflexive buy button on rumors of Castro's demise. That stalwart fund was at an +85% premium yesterday and is up another 10% today, while CRF was at 94% on 12. Jan. and has come down 5% since. CUBA also eats over 300 bps a year in fees, while CRF takes "only" 150.

FD: no position in CUBA (I can't get shares to short), short CRF, short CLM

Crossposted to the original blogs.marketwatch.com/...

2007 Jan 17 02:13 PM