If I could talk to institutional investors or their program driven computers, I would tell them, "Why bother getting Apple exposure through the most popular indexes at market prices when you can own Apple at 10% to 13% discounts through equity closed-end funds (CEFs)?"
Of course, computers can't exactly pour millions in assets into thinly traded CEFs without driving their share prices up, but one can always hope.
The following equity CEFs have Apple, Inc. (NASDAQ:AAPL) as their largest holding according to their latest reports and fact sheets as of the 2nd quarter of 2011, and since most of these funds are option-income funds, which sell index options against their stock portfolios, they are not in danger of losing their positions in AAPL by being called away. So while AAPL keeps outperforming the market indices that these funds sell options against, that just works in the fund's favor and shows up as superior NAV performance. But do investors seem to realize this? Nooooo. They continue to sell these funds down as hard as any other fund! But it's not just AAPL you can essentially own at 10%-13% discounts, but every position in these fund's portfolios, which include mostly large-cap S&P 500 (NYSEARCA:SPY) and NASDAQ (NASDAQ:QQQ) names. Here are the funds I follow that have the largest Apple Computer exposure.
Nuveen Equity Premium Advantage fund (NYSE:JLA) :
Apple Computer: 8.5%
Market Price Yield: 10.9%
NAV Performance YTD: -2.5%
Option coverage: 100%
Eaton Vance Tax-Managed Buy/Write Opportunities fund (NYSE:ETV) :
Apple Computer: 7.6%
Market Price Yield: 12.2%
NAV Performance YTD: -5.9%
Option Coverage: 95%
Nuveen Equity Premium Opportunity fund (NYSE:JSN) :
Apple Computer: 6.3%
Market Price Yield: 10.9%
NAV Performance YTD: -2.95%
Option Coverage: 100%
Eaton Vance Tax-Managed Global Buy/Write Opportunities fund (NYSE:ETW) :
Apple Computer: 5.6%
Market Price Yield: 12.5%
NAV Performance YTD: -9.3%*
Option Coverage: 95%
Eaton Vance Tax-Managed Buy/Write Opportunities fund (NYSE:EOS) :
Apple Computer: 5.5%**
Market Price Yield: 11.1%
NAV Performance YTD: -6.9%
Option Coverage: 50%
Note: For comparisons, as of September 23rd the S&P 500 is down -8.7% YTD and the NASDAQ is down -7.4% YTD, dividends included.
* ETW's NAV performance YTD is not as strong as the others due to it's global stock exposure.
** EOS is the only one of these funds that sells individual stock options and thus, is subject to portfolio stock being called away. However, EOS sells the lowest option coverage so roughly only half of any position is exposed.
So here's the bottom line. These funds have Apple Computer as their largest holding, have some of the best NAV performances YTD and long term of all equity CEFs I follow, are defensive because of their sell call option strategy, offer 11% to 12.5% annual yields AND are at -10% to -13% discounts. When I compare those statistics against other equity CEFs, which have had far worse NAV performance not only on a YTD basis but also over the life of the funds and yet are trading close to par and even premiums, it is frankly ludicrous that the above funds suffer the widest discounts when they should be at the highest valuations. I will continue to recommend to investors the most attractive funds whose income strategy is optimized in the current volatile market environment. Other funds that have AAPL as their largest holding but in a lower percentage include the Eaton Vance Enhanced Equity Income fund (NYSE:EOI) at 4.7% and Eaton Vance Tax-Managed Diversified Equity Income fund (NYSE:ETY) at 3.6%.
Now there is one equity CEF fund that I am aware of that has an even larger percentage position in AAPL. Nuveen's NASDAQ Premium Income & Growth fund (NASDAQ:QQQX) has a whopping 21% stake in AAPL, but it's not at near the discount of these funds. And of course, there are popular ETFs that hold AAPL as their largest holding too but they are, of course, traded at market prices. This recent article discusses some of these ETFs that have large Apple Computer holdings for those investors seeking AAPL exposure in an ETF.
Finally, I would like to add that market price discounts and premiums for CEFs are subject to investor's emotions and expectations, wheras a fund's NAV is only subject to the performance of its underlying portfolio. So even if a fund's NAV includes a portfolio of the greatest stocks in the world and is outperforming the broader market indexes, that does not mean that investors couldn't continue to sell down the fund's market price to even greater discounts. However, in my experience, that is where the opportunity lies with CEFs and that is generally the time you want to be adding to your positions. Though equity closed end funds historically trade at modest discount prices, all of the above mentioned CEFs traded at premiums at some point over the past 2 years.
Disclosure: I am long ETV, ETW, EOS, JLA.