Closed-End Funds 2011 Year-End Bargain Shopping

by: Todd Johnson

December has historically offered tempting values on decimated closed-end funds (CEF). Discouraged investors sell their losing closed-end funds, and reallocate into new positions. I focus upon buying quality closed-end funds based upon the following criteria:

  • An experienced management team is in place.
  • The closed-end fund is trading at a lower valuation due to year-end tax loss selling.
  • The closed-end fund offers a catalyst for income or capital appreciation.
  • Ideally the fund should be purchased at a 10%-25% discount to net asset value (NAV).
  • Ensure the closed-end fund is not over leveraged, especially during today's economic background.
  • If I am buying a closed-end fund with known problems or baggage, then I accept this knowledge. Investors, en masse, will sell a known problem fund. Sometimes, the fund is oversold and provides a temporary buying opportunity.

This year is a little different. The ongoing European sovereign debt crisis has placed pressure upon specific European sovereign debt securities. Investors want to avoid closed-end funds with any exposure to unreasonable levels of toxic currency risk. Here are a few names that pique my interest.

The Adams Express Company (NYSE:ADX)

Adams Express has numerous positive catalysts to consider establishing a position. Adams Express, on September 8, enacted an annual minimum 6% distribution rate. As an income investor, I want to ensure I am receiving income on a regular basis. The 6% distribution will be paid in up and down markets.

(Click charts to enlarge)

Fund Overview

Adams Express was established as a closed-end fund in 1929. The fund has paid dividends since 1935. The overall goals are current income and capital preservation. Investments are in U.S. equities, convertible securities, debt instruments, and selling covered calls. The fall newsletter highlights the fund's focus upon playing defense while trying to make positive net returns.

Adams Express employs a conservative investment philosophy. The assets under management are focused upon positive returns with a lower-than-market risk for shareholders. I am showing, however, a 1.06 beta. This implies the fund is 6% more volatile than the overall market.

Most of the holdings are blue chip or high quality equities. These names include CF Industries (NYSE:CF), Apple (NASDAQ:AAPL), and Philip Morris (NYSE:PM). CF Industries is a global fertilizer company. Apple is a marketer of the popular iPhone 4S, iPad, and iPod. Philip Morris sells tobacco worldwide.

Action Plan

I have always followed Adams Express but never was too impressed with the lack of distributions. Management and their philosophy match mine. The 6% minimum payout has clearly made me stand up and take notice.

I personally have a negative bias on the markets at this time. If I establish an Adams Express long position, it will be in conjunction with a short SP500 (NYSEARCA:SPY) position. The rationale is Adams Express is selling at a 15% discount to net asset value. A short SP500 and long Adams Express should be a fairly conservative net position.

Eaton Vance Tax-Managed Global (NYSE:EXG)

Eaton Vance Tax Managed Global began trading in 2007. This was a time of balloon housing prices. Home equity line of credit still provided an omnipresent source of automated teller machine funding for fun in the sun. Little did the Eaton Vance Tax Managed Global managers know that 2008 would be a painful torture to many closed-end funds.

Eaton Vance Tax Managed Global's goal is to obtain current income and obtain equity capital appreciation. The fund invests in global equities and employs a covered call strategy.


As with everything in life, "timing" is essential. The simple phrase "buy low and sell high" is far easier said than done. The investor who purchased Eaton Vance Tax Managed Global in 2007 or 2008 has not fared so well. My goal is to attempt to buy these funds when they look very ugly in every aspect.

Eaton Vance Tax Managed Global currently offers some tempting characteristics. The fund has $2.8 billion under management. In addition, the fund has a fairly low 1.06% annual expense ratio. Zero leverage is being employed by the fund's management team.

The fund, per its latest SEC N-Q, has the basic blue chip companies one would expect. I do have reservations about its November 2011 holdings. As investors, the latest holding report is as of July 31st, 2011.

Action Plan

The Eaton Vance Tax Managed Global SEC N-Q, for October 31, should be available in the near future. I have highlighted in "yellow" the countries I do not want exposure to at the present time. I can wait to see if Eaton Vance Tax Managed Global management has traded out of these troubled waters.

The fund is currently trading at a 14.15% discount to net asset value. I would seek a 20% discount to net asset value to be comfortable with a position, based upon dated knowledge of the holdings.

The current distribution yield is 14.41%. Until I can confirm what positions are current, I will have to sit on the sidelines.

Nuveen Multi Strategy Income & Growth Fund 2 (NYSE:JQC)

Nuveen Multi Strategy Income is a name with a pending positive catalyst. My goal is to attempt to buy Nuveen Multi Strategy Income on a 20% discount to net asset value. Nuveen Multi Strategy Income seeks high current income. The secondary goal is a high total net return.


The repositioning of Nuveen Multi Strategy Income portfolio is expected to occur in early 2012. The goal is to increase the fund's attractiveness by identifying explicit credit-focused criteria. Nuveen is a quality closed-end fund sponsor.

The fund, per its August 23 filings, will seek to decrease the discount to net asset value. The article title, "Portfolio Repositioning Overview," is to ensure current and new investors on what the credit quality will be in 2012. The current discount to net asset value is 11.45%. The yield is 9.95%. If the fund can break above a 20% discount to net asset value, then I would like to take a position.

Action Plan

I will put in bids with an approximate 20% discount to net asset value. If I receive shares, great. If not, there are always opportunities around the next corner.

Aberdeen Asia Pacific Income Fund Inc. (NYSEMKT:FAX)

Aberdeen Asia Pacific Income Fund is a fairly 'safe' closed-end fund. The fund's goal is to obtain current income and capital appreciation through investments in Australian and Asia Pacific equity and debt securities. The fund typically has 40%-45% of assets under management in Australian securities.

The fund pays a monthly 3.5 cent dividend. The annual yield is currently 6.2%. At present time, the fund is selling at a 5.33% discount to net asset value.

Action Plan

The above graph highlights Aberdeen Asia Pacific Income Fund net return since 2002. The total annualized rate of return was 11.3%. This assumes dividends are not reinvested. One caveat is the fund is levered at 24.55%.

I currently own shares. If the fund can trade at a 10% discount-to-net-asset value, then I would add additional shares.

Western Asset Global High Income Fund (NYSE:EHI)

Western Asset Global High Income Fund seeks high current income by investing in emerging markets. The fund holds nearly 500 positions and is fairly diversified in its positions. The debt rating of the majority of positions is BBB, BB, and B.

The fund yields an annual 9.74%. This is an attractive yield based upon the SEC N-Q indicating the fund's positions as of August 31, 2011. The fund has a 45% position in U.S. based debt securities. Risk averse investors should be aware that the fund does hold positions in countries with a geopolitical risk. These countries include Venezuela and Russia.

For the record, I personally have a robust comfort zone with Russian debt offerings.

Everyone must know their risk tolerance. Western Asset Global High Income Fund has a wide ownership of debt securities. If one country has debt problems, the diverse debt is likely to avoid any major portfolio damage.

Action Plan

I am looking to buy Western Asset Global High Income Fund at a 10% discount to net asset value. I do want to avoid any problems with the fund's 21% leverage rate. The leverage rate and global debt problems do pose risk to investments.

AllianceBernstein Global High Income Fund, Inc. (NYSE:AWF)

AllianceBernstein Global High Income Fund's primary investment objective is high current income. The Fund’s secondary objective is capital appreciation. AllianceBernstein Global High Income Fund invests in securities denominated in non U.S. currencies as well as those denominated in the U.S. dollar. These investments include sovereign debt offerings and corporate bond issuers. In addition, the fund invests in emerging market sovereign debt securities issued by emerging and developed nations.

The fund is currently trading at a .74% premium to net asset value. The yield is 8.51%. The latest SEC N-Q filing, reflecting June 30 holdings, provides a detailed look at the extensive debt listing and diverse holdings.

Action Plan

AllianceBernstein Global High Income Fund's performance has been outstanding. I do own shares in this fund. If the fund has a temporary sell-off, I would look to add if the annual yield is boosted up to the 9% range. Clearly, investors should attempt to avoid paying a premium to the net asset value.

BlackRock Resources Common (NYSE:BCX)

BlackRock Resources' goal is to achieve high current income with capital appreciation. The investment strategy is through commodity related equities, debt instruments, and derivative positions.

BlackRock Resources has a significant stake in energy master limited partnerships, fertilizer equities, and debt instruments in BlackRock short-term debt instruments. This is data as of July 31, 2011. This date is the date of the latest SEC N-Q filing. BlackRock Resources has an extensive short covered call strategy employed to increase net income.

Action Plan

The fund began trading March 29, 2011. This means the initial public offering shares, priced at $20, are now trading at a 30% loss. This should provide ample incentive for original shareholders to take the 2011 tax loss.

I would like to add a position at 20% discount-to-net-asset value. The current discount-to-net-asset value is 12.18%. The fund pays an annual dividend of $1.40. The fund's current annual yield sits at 10.17%.

Disclosure: I am long FAX, AWF.