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Not all funds are the same. Choosing the best funds can save investors money as they construct their portfolios. Closed-End funds (CEFs) trading at a discount to net asset value are a source of potentially attractive ways to invest in many strategies. In a sense, they are on sale.

How do CEFs work? CEFs are mutual fund companies that buy and sell investments from a fixed pool of capital. Shares in CEFs are sold by current owners, often at values that are lower than the sum of their holdings. When you buy a CEF, your investment pays expenses to the fund manager. The hope of CEF investors is that the return on their assets will exceed the fund manager's expenses.

Investors should consider CEFs as alternatives to ETFs and direct stock ownership based on a handful of key factors:

Portfolio holdings. What are the strategy and style of the CEF's holdings? Do stocks in the portfolio have strong balance sheets?

Discount to net asset value. Does the CEF's trade at a lower price than the sum of its portfolio holdings? A deeper discount is better.

Expense ratio. The less that is paid to fund managers, the more investors keep.

Distribution yield. How much of the share price is returned to investors in the form of a dividend payment? The higher the dividend yield, the higher the portion of fund value that is liberated from future fund fees in future years.

CEFs were screened for sizeable discounts of at least nine percent. These discounted CEFs were screened based on a sample of its 25 top holdings. Funds with a large portion of sample holdings which are categorized as "safe" by the Altman Z-score, and with a small portion that are categorized as "distressed" are presented below:

Ticker

Company

Safe

Grey Zone

Distressed

NIE

AGIC Equity & Convertible Income

87.0%

8.9%

4.2%

CET

Central Securities

80.6%

6.5%

12.8%

FUND

Royce Focus Trust

82.4%

13.7%

3.9%

ADX

Adams Express

69.8%

18.3%

11.9%

GAM

General American Investors

67.2%

16.0%

16.8%

ZF

Zweig

86.3%

0.0%

13.7%

GLV

Clough Global Allocation

57.2%

22.8%

19.9%

NGZ

AGIC Global Equity & Convertible Income

70.0%

14.4%

15.6%

DCA

Virtus Total Return Fund

95.0%

0.0%

5.0%

OTCQB:FXBY

FOXBY CORP

89.1%

2.2%

8.8%

ASG

Liberty All-Star Growth

90.0%

4.8%

5.2%

CSQ

Calamos Strategic Total Return

53.6%

32.1%

14.3%

MCN

Madison-Claymore Covered Call & Eq Strat

67.6%

14.9%

17.5%

MSP

Madison Strategic Sector Premium

69.2%

17.4%

13.4%

ETW

Eaton Vance Tx-Mgd Glbl Buy-Write Opp

96.5%

0.0%

3.5%

JLA

Nuveen Equity Premium Advantage

86.1%

9.8%

4.1%

JPG

Nuveen Equity Premium and Growth

73.5%

7.6%

18.9%

JPZ

Nuveen Equity Premium Income

72.6%

7.7%

19.7%

ETB

Eaton Vance Tax-Managed Buy-Write Income

83.1%

6.4%

10.5%

ETV

Eaton Vance Tax-Managed Buy-Write Opp

86.9%

6.0%

7.1%

EOI

Eaton Vance Enhanced Equity Income

81.9%

3.7%

14.3%

ETJ

Eaton Vance Risk-Mgd Divers Eq Inc

73.9%

11.0%

15.2%

ETY

Eaton Vance Tax-Managed Divrs Equity Inc

77.9%

11.3%

10.8%

EOS

Eaton Vance Enhanced Equity Income II

93.8%

3.6%

2.6%

PEO

Petroleum & Resources

74.6%

16.9%

8.5%

GRX

Gabelli Healthcare & Wellness Trust

67.3%

23.6%

9.0%

BTF

Boulder Total Return

88.5%

7.5%

4.0%

Sample holdings for each fund were used to estimate an mean market capitalization and price-to-book ratio. These estimates as well as expense ratio, discount, and distribution rates are provided below:

Ticker

Average P/B

Market Cap Average ($Millions)

Strategy

Discount

Dist Yield

Fee

NIE

4.0

97763

Convertible Secs

-9.09%

6.30%

1.10%

CET

2.1

28447

Core Funds

-17.37%

5.40%

0.78%

FUND

2.7

38697

Core Funds

-11.80%

6.01%

1.37%

ADX

3.3

126472

Core Funds

-14.49%

4.61%

0.58%

GAM

4.0

68033

Core Funds

-14.77%

3.18%

1.54%

ZF

4.8

89113

Core Funds

-11.14%

10.22%

1.23%

GLV

2.4

60967

Global

-13.12%

8.63%

2.87%

NGZ

3.9

102781

Global

-9.47%

8.40%

1.18%

DCA

5.6

80454

Global

-12.29%

8.72%

1.90%

FXBY

3.6

160963

Growth Funds

-31.96%

0.00%

2.28%

ASG

7.5

47921

Growth Funds

-10.09%

6.64%

1.79%

CSQ

2.6

138345

Income & Pref Stk

-10.08%

8.80%

1.93%

MCN

2.4

63414

Opt Arb/Opt Strat

-11.60%

8.70%

1.31%

MSP

2.4

51893

Opt Arb/Opt Strat

-12.81%

8.73%

0.98%

ETW

3.9

163695

Opt Arb/Opt Strat

-12.73%

10.69%

1.09%

JLA

4.0

147332

Opt Arb/Opt Strat

-10.88%

9.33%

1.00%

JPG

5.8

177787

Opt Arb/Opt Strat

-10.60%

8.65%

0.98%

JPZ

5.8

172363

Opt Arb/Opt Strat

-9.89%

9.06%

0.98%

ETB

5.9

168106

Opt Arb/Opt Strat

-10.13%

9.57%

1.12%

ETV

6.2

150471

Opt Arb/Opt Strat

-10.57%

10.26%

1.07%

EOI

6.3

122146

Opt Arb/Opt Strat

-11.99%

9.94%

1.15%

ETJ

6.4

139948

Opt Arb/Opt Strat

-14.74%

12.05%

1.07%

ETY

6.4

121146

Opt Arb/Opt Strat

-12.67%

11.72%

1.07%

EOS

7.1

117048

Opt Arb/Opt Strat

-10.75%

9.97%

1.13%

PEO

2.5

55683

Sector Equity

-13.49%

11.11%

0.64%

GRX

3.4

49822

Sector Equity

-15.38%

9.36%

2.11%

BTF

3.6

34174

Value Funds

-18.59%

0.00%

2.12%

From this list there are several funds that can be mapped to a Morningstar style box and added to an investment portfolio at a discount. CET offers mid-cap blend exposure at a discount. ZF offers large cap growth exposure at a discount. PEO offers large cap value at a discount. ADX and NZG are both large cap blend funds trading at a discount. Each of these funds trades at a discount, and issues a sizeable distribution. Though these five funds have higher expenses than ETFs in their style boxes, the distributions paid by these CEFs will liberate value from being consumed by higher fees over time. Their distributions enable their discounts to overwhelm their higher fees.

Moreover, this list features many funds which generate income through option writing strategies. These option strategy funds hold a host of large cap stocks and write options on them. Option writing strategies are an attractive way to diversify an income portfolio, and these funds are even more interesting given the discounts on their holdings.

Please read the article disclaimer.

Source: Discount Closed-End Funds With Solid Holdings