Ellsworth Fund: Closed-End Convertible Bond Fund Worth Purchasing At A Discount

Includes: ECF
by: Robert Lewis

Ellsworth Fund Ltd was first formed in 1986 and has been continually managed by Dinsmore Capital Management. It is traded on the American Stock Exchange under the symbol ECF. As of December 16, 2011, its discount from net assets was 14.04 and its net asset value performance for one year was (5.091%).

As of September 30, 2011, ECF had net assets of $100,007,782 with no leverage. ECF had a capital loss carry forward of $ 9,180,088 and unrealized depreciation of $ 9,112,556. As you know, I regard carry forwards and depreciation as added bonuses.

Major allocations were as follows:

Convertible bonds and notes 61.3%
Convertible preferred stock 14.2%
Common stock 8.4%
Short term investments 4.8%

The three largest major industry exposures were as follows:

Telecommunications 12.7%
Energy 11.6%
Pharmaceuticals 10.5%

Its ten largest investment holdings, constituting 20.3% of assets, were as follows:

Intel 2.7%
EMC 2.7%
Nuance Communications 2.5%
Chesapeake Energy 2.2%
Equinix 2.2%
Verizon Communications 2.2%
Wells Fargo 2.1%
AT & T 2.0%
SBA Communications 1.7%
10 Largest Holdings 20.3%

For the fiscal year ending September 30, 2011, ECH had the following:

Market value total return (7.13%)
Net asset total return (2.82%)
Expense ratio 1.1%
Net investment income 2.6%
Turnover 47%

First Trust Portfolios owns 11 % of the outstanding shares and Relative Value Partners owns 6.1% of the shares.


I think these shares are well worth purchasing when the discount exceeds 15%. You are buying a diversified portfolio of convertible debt and preferred stock. The loss carry forward and unrealized depreciation adds to the attraction. Convertible debt is usually issued by financially weaker rather than stronger companies and the market has not been kind to them. With the discount, the investment income exceeds 3% of net asset value, offering a decent return while waiting for the economy to revive.

I again wish to stress that ECF should be part of a basket of several closed end funds which offer similar characteristics but have different investment philosophies and approaches.

Disclosure: I am long ECF.