Gold, Energy, and Natural Resource CEFs for the Income Investor

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Includes: BCF, BCX, BGR, BQR, CFD, GGN, GNT
by: Michael J. Ray
For today’s income investor, the financial markets are wild places. No longer is anyone able to sit in CDs or U.S. Treasuries and make a decent return. As long as the U.S. government is going to keep interest rates as close to zero as possible, the income investor is forced out into the scary world of the equity markets in search of yield. With the recent volatility that we have seen, these markets are very scary places indeed. So the question is, where should the income investor look? Actually there are lots of possibilities from mReits, business development companies, trusts, and a whole laundry list of other items.
One possibility that exists is the closed-end fund (CEF) market with a wide variety of funds available. Here we focus on CEFs providing a competitive yield and whose investment thesis rotates around gold, energy, and natural resources. Of course this is just an introduction to the funds and if anyone is serious about investing in them, they should make sure to complete a full review to determine if the fund is right for their needs.
The BlackRock Energy and Resources Trust (BGR) is a closed-end equity fund that commenced operations in December 2004. The investment objective of the fund is providing total return through a combination of current income and capital appreciation. The trust will invest at least 80% of its total assets in the equity securities of energy and natural resources companies and equity derivatives with exposure to the energy and natural resources industry. Companies in the energy and natural resources industry include those involved in the exploration, production or distribution of energy or natural resources, such as gas, oil, metals and minerals as well as related transportation companies and equipment manufacturers. Specifics about the fund are as follows:
Number of Holdings 61
Turnover Rate 80%
Yield 5.95%
Dist. Amount $0.4050
Divi Frequency Quarterly
Total Exp Fees 1.11%
Leverage 0.05%
Premium/
Discount
-4.69%
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Real Asset Equity Trust (BCF) is also a BlackRock Trust whose investment objective is to provide total return through a combination of current income, current gains and capital appreciation. The fund will attempt to achieve this objective by investing primarily in equity securities of companies engaged in energy, natural resources and basic materials businesses and companies in associated businesses and equity derivatives with exposure to those companies. Unlike BGR, which is focused on energy companies, BCF is more weighed in mining stocks, with energy being the second-largest holding. Specifics about the fund are as follows:
Number of Holdings 122
Turnover Rate 71%
Yield 8.53%
Dist. Amount $0.2718
Divi Frequency Quarterly
Total Exp Fees 1.08%
Leverage 0.00%
Premium/
Discount
-3.70%
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The Gabelli Global Gold, Natural Resources and Income Trust (GGN) is a closed-ended equity fund launched by GAMCO Investors, Inc. and managed by Gabelli Funds, LLC. The fund is not an investment in gold. It is an income investment that happens to be using gold, silver, and natural resource stocks to derive income off the selling of covered calls. GGN invests in the public equity markets across the globe. The fund makes investment in equity securities of firms operating in gold and natural resources industries including companies in exploration, mining, fabrication, processing, distribution or trading of gold, financing, managing, controlling or operating of companies engaged in gold-related activities. It also invests in companies principally engaged in the exploration, production or distribution of natural resources, such as gas, oil, paper, food and agriculture, forestry products, metals and minerals as well as related transportation companies and equipment manufacturers. Specifics about the fund are as follows:

Number of Holdings 109
Turnover Rate 52%
Yield 9.82%
Dist. Amount $0.14
Divi Frequency Monthly
Total Exp Fees 1.03%
Leverage 9.66%
Premium/
Discount
2.76%
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The Gabelli Natural Resources, Gold & Income Trust (GNT) is another closed-end fund run by the Gabelli Funds. The fund’s primary investment objective is to provide a high level of current income from interest, dividends and option premiums. The fund’s secondary investment objective is to seek capital appreciation consistent with the fund’s strategy and primary objective. Under normal market conditions, the fund will attempt to achieve its objectives by investing at least 80% of its assets in securities of companies principally engaged in the natural resource and gold industries, and by writing covered call options on the underlying equity securities. At first glance, this CEF looks to be very close to the GGN fund above. The difference here is that this fund does invest in sectors like chemicals, agriculture, and machinery while GGN is mainly focused on the gold and energy aspects of the market. Specifics about the fund are as follows:
Number of Holdings 82
Turnover Rate Too Early
Yield 10.01%
Dist. Amount $0.14
Divi Frequency Monthly
Total Exp Fees Too Early
Leverage Too Early
Premium/
Discount
-2.18%
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Note: This fund just started in 2011 so not all information is available yet.

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EcoSolutions Investment Trust (BQR) is another BlackRock Trust whose investment objective is to seek current income, current gains and long-term capital appreciation. The trust seeks to achieve its investment objective by investing substantially all of its assets in equity securities issued by companies that are engaged in one or more of the new energy, water resources and agriculture business segments and utilizing an option strategy to enhance current gains. Under normal market conditions, the trust will invest at least 80% of its total assets in equity securities issued by companies that are engaged in one or more of the new energy, water resources and agriculture business segments. Specifics about the fund are as follows:
Number of Holdings 99
Turnover Rate 124%
Yield 10.04%
Dist. Amount $0.2350
Divi Frequency Quarterly
Total Exp Fees 1.45%
Leverage 0.00%
Premium/
Discount
3.67%
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Nuveen Diversified Commodity Fund
(CFD) is a fund that invests directly in a diversified portfolio of commodity futures and forward contracts to obtain broad exposure to all principal groups in the global commodity markets. The fund is unleveraged and its investment strategy has three elements which are to actively managed portfolio of commodity contracts, write commodity call options for income, and hold a collateral portfolio of cash equivalents and short-term, high grade securities. This is the only CEF in the article that is focused solely on futures and does not hold any actual companies in its holdings.
Number of Holdings N/A
Turnover Rate N/A
Yield 6.90%
Dist. Amount $0.1450
Divi Frequency Monthly
Total Exp Fees 2.00%
Leverage 0.00%
Premium/
Discount
-2.93%
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Resources & Commodities Strategy Trust (BCX) is our last BlackRock Trust whose primary investment objective is to seek high current income and current gains, with a secondary objective of capital appreciation. The trust will seek to achieve its objectives by investing substantially all of its assets in equity securities issued by commodity or natural resources companies, derivatives with exposure to commodity or natural resources companies or investments in securities and derivatives linked to the underlying price movement of commodities or natural resources. This CEF is interesting in that it tries to incorporate exposure to the actual commodity instead of just companies that happen to deal with the commodity. Specifics about the fund are as follows:

Number of Holdings N/A
Turnover Rate N/A
Yield 8.18%
Dist. Amount $0.35
Divi Frequency Quarterly
Total Exp Fees Too Early
Leverage Too Early
Premium/
Discount
-2.45%
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Note: This fund just started in 2011 so not all information is available yet.

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Disclosure: I am long GGN, BGR.