CEF Weekly Review: ETF Dividend Aristocrats

| About: Voya Infrastructure, (IDE)

Actionable Items:

  • Highest Positive Spread: BlackRock MuniHoldings Fund (NYSE:MHD)

  • Lowest Negative Spread: Nuveen Municipal Value Fund 2 (NYSE:NUW)

  • Focus Stock of the Week: ING Infrastructure, Industrial and Materials Fund (NYSE:IDE)

  • Last Week s Focus Stock: BlackRock Debt Strategies Fund (NYSE:DSU)

CEF Weekly Review: On average, the 13 closed-end fund (CEF) types registered a share price decrease of 0.3% for the week ending 3/9/12. The PowerShares CEF Income Composite (NYSEARCA:PCEF), an ETF that invests in taxable income CEFs, decreased 0.3% for the week. PCEF is up 7.4% YTD on price appreciation alone. Currently, PCEF's trailing twelve months' yield is 8.1%. The S&P 500 advanced 0.1% during the week. The S&P 500 is up an impressive 9.0% YTD on very low volume.

(Click Here for YTD CEF Performance. See, "Research" Menu; "CEF Weekly Information" tab.)

CEF Weekly Fund Type Performance: With regards to the investment markets, if you had slept through this week you would have awoken with only the slightest price changes in the major assets classes- sans copper which was off 1.9%.

However, you would have missed a breathtaking plunge in the equity markets as the DJIA clocked its first triple digit plunge of the year. The drop was generally attributed to a combination of slower anticipated global growth and an uneven closing of the second chapter of the Greek debt crisis. The fall in equities was later reconciled by strong U.S. employment stats.

The CEF fund types also reflected small changes in average share price. For the second consecutive week, investors favored fixed-income CEFs over equity-oriented funds. However, the price change differences among the various CEF fund types were narrow.

The most notable difference was that while fixed-income CEFs performed better than the CEF average, InvGrdBndFnds lagged. InvGrdBndFnds was the only fixed-income fund type to register below the CEF average. This may reflect the concern over rising interest rates. This was somewhat reflected in the slight downtick of 0.3% for the taxable bond ETF (NYSEARCA:BND) and the potential pressure on the short-end of the yield curve through a "sterilized" quantitative easing program considered by the Fed.

Weekly CEF Winners and Losers: The CEFs with the greatest positive PrcNAVSprd* for the week was BlackRock MuniHoldings Fund (MHD). MHD's share price advanced 4.4% while its NAV per share declined 0.1% generating a positive PrcNAVSprd of 4.5%.

MHD invests in investment grade muni bonds. Late last week (March 1st) it announced an increase in its monthly distribution rate to $0.0915 from $0.0905 per share, a rise of 1.1%. The stock is currently trading at a 6.0% premium and at a 6.0% annualized monthly yield. MHD experienced elevated volume during the week in response to its distribution increase. The average distribution yield for NatlMuniBndFnds, of which MHD is a component, is also 6.0% and the average premium is 2.7%.

MHD's total net assets are $323.3 million and it employs effective leverage of 34.6% including 26% of Variable Rate MuniFund Term Preferred shares structural debt.

The CEF(s) with the greatest negative PrcNAVSprd for the week was Nuveen Municipal Value Fund 2 (NUW). NUW's share price was down 5.5% while its NAV was down 0.2% generating a negative PrcNAVSprd of 5.3%.

Unlike MHD, above, that was rewarded with a share price rise with an increase in its monthly distribution, NUW was punished for decreasing its monthly distribution to $0.067 from $0.071 per share late last week-a significant drop of 5.6%. This distribution decline is on top of another distribution reduction of 5.3% at the end of 2011.

NUV is an un-leveraged, investment-grade muni fund investor with approximately a quarter of a billion dollars in total net assets. It is now trading at par and its annualized monthly distribution rate is 4.7% with a taxable yield equivalent of 7.3%.

Not a Happy Trend: What is of interest is that five of the 10 Nuveen non-leveraged muni CEFs reduced their monthly distributions in March. This should offer a "heads up" for CEF muni investors as it is another "brick in wall" regarding the lagging health of municipalities and the pricey nature of muni CEFs. (More to come on this topic)

Insider Trading: There was some additional insider buying during the week. A wholly-owned subsidiary of Morgan Stanley indirectly purchased 5 shares of Pioneer High Income Trust (NYSE:PHT) Auction Market Preferred shares at 25,000 per unit. The subsidiary has accumulated 1,442 shares.

Robert F. Wulf, a director of both Flaherty & Crumrine/Claymore Total Return Fund (NYSE:FLC) and Flaherty & Crumrine/Claymore Preferred Securities Income Fund (NYSE:FFC), purchased the equivalent of $75,000 of common stock in each of the funds. He purchased 3,910 shares at $19.16 per share and 4,084 shares at $18.34 per share, respectively.

Paul W. Adelgren, a director of Gladstone Capital Corporation (NASDAQ:GLAD), purchase an additional 710 shares at $8.51 per share for a cumulative holding of 4,428 shares.

Significant Events: The Thai Capital Fund (NYSEMKT:TF-OLD) announced that the Board has approved and will recommend to the Fund's stockholders a "Plan of Liquidation and Dissolution" for the Fund. The proposal will be submitted at the annual meeting on June 4, 2012, at the offices of Daiwa Capital Markets America Holdings, Inc. The record date for stockholders entitled to notice of and to vote at the meeting has been set as March 19, 2012. Liquidation of the fund will require the affirmative vote of stockholders holding 66.6% of the Fund's outstanding shares of common stock.

CEF Focus Stock(s) for the Week: Our focus stock for the week is ING Infrastructure, Industrial and Materials Fund (IDE). As you would expect, fears of a global economic slowdown led by China and Brazil rippled through the market on Tuesday. It took down the usual suspects with it. IDE dropped 3.2% on Tuesday and another 1.3% on Wednesday. For the week, IDE logged in a negative spread of 3.3% with its price and NAV declining 4.2% and 1.0%, respectively. (It was one of the CEFs with this week's greatest negative spreads).

IDE trades at an 8.0% discount to NAV and currently generates an annualized quarterly yield of approximately 10.0%. That distribution is composed of a combination of net investment income (25%), short-term capital gains (33.0%) and a return of capital (42.0%). IDE is getting ready to declare its April quarterly distribution in mid-March with a likely ex-date in early April and a payment in mid-April.

IDE's portfolio is approximately $400 million with no leverage and consists mostly of large cap stock with a large dollop of energy-related investments. It holds position in CenterPoint Energy (CNP, Schlumberger (NYSE:SLB) and National OilWell Varco (NYSE:NOV).

There was some fairly large volume at the end of the week creating successive upticks in the stock price. WrldEqFnds, of which IDE is a component, gets "jerked" around and one week's loss is the next week's gain-all things being equal.

Last Week's Focus Stock(s): Our focus stock last week was BlackRock Debt Strategies Fund (DSU). DSU is a high-yield, leveraged CEF. It currently trades at an 8.0% annualized monthly distribution yield and is trading at a slight discount. Its total net assets are $580 million and it's about 25% leveraged.

On a relative basis, DSU is trading at par while other high-yield, leveraged CEFs are trading at an average premium of 7.5%. This advantage is somewhat offset by its yield being slightly lower than the 8.5% average of its peer group. Its leverage is comparable and its expense ratio is slightly lower than its peers.

The reasons we found the stock interesting were:

  1. DSU is trading in the single digits around $4.00 per share and it has good liquidity with average daily volume (3 month average) of 382,179 shares. If the stock market continues to advance, investors will be looking for low priced stocks to buy in hopes of playing catch up (the rising boat theory).

  2. In the event that the equity markets stay range bound, investors will be paid to wait for an improvement in the economy. That is likely to be constructive for its underlying credits.

  3. Insider buying of the stock in the opening days of March. Michael J. Castellano, a director, purchased 2,500 shares and James Keenan, a portfolio manager, purchased 3,500 shares. Morgan Stanley is a 5% owner of DSU.

DSU recently declared its regular monthly distribution of $0.027; it will go ex-dividend this week (March 13th) and is payable the end of March.

DSU was up 1.2% intra-week and ended the week down a penny.

I own a diversified portfolio of CEFs and ETFs and is long stocks in the CEFBig10™ and CEFMuni10™. The first is a balanced equity-income portfolio (CEFBig10™) and the second a tax-exempt income portfolio (CEFMuni10™).

[*] All things being equal, price and NAV should move in tandem. A price movement greater than the NAV generates a positive PrcNAVSprd and may be interpreted as negative on a near-term basis and indicate that the stock is overvalued relative to its NAV which in theory is the stock's intrinsic value. The opposite would be true for a negative PrcNAVSprd.

Disclosure: I am long PCEF, IDE, DSU.