Madison Strategic Sector Premium Fund, is a closed-end fund trading on the New York Stock Exchange, under the symbol MSP. It is a buy/write fund, which seeks to produce additional income by writing options against its portfolio. I have written about other buy/write funds in the past but this one seems to live up to its mandate. Also, as opposed to other buy/write funds that simply sell Index Calls, MSP actually sells options against specific securities.
As of December 31, 2011, MSG had gross assets of $ 76,783,433 and had written puts and calls totaling $ 3,330,890 or 4.6% of its portfolio. As of March 20, 2012, MSG sold at a 13.38% discount from net asset value, which is also a plus.
MSP has a wide sector allocation, consisting as follows:
| Consumer Discretionary | 13.0% |
| Energy | 6.9% |
| Financials | 16.2% |
| Health Care | 22.9% |
| Information Technology | 26.8% |
| Broad Stock Indexes | 5.0% |
| U.S. Treasury Note | 1.6% |
| Cash & Other | 7.6% |
MSP's 10 largest holdings,as of December 31, 2011, were as follows:
| Visa (V) | 4.85% |
| Microsoft (MSFT) | 4.08% |
| Google (GOOG) | 3.53% |
| Gilead Sciences (GILD) | 3.35% |
| State Street Bank (STT) | 3.30% |
| Affiliated Managers group (AMG) | 3.28% |
| Cisco Systems (CSCO) | 3.21% |
| Powershares QQQ Trust | 3.05% |
| Wells Fargo (WFC) | 2.82% |
| Target (TGT) | 2.80% |
Buy/Write funds do not do well in down markets and MSP was no exception. As of December 31, 2011, MSP had accumulated net realized losses of ($16,494,336) and unrealized losses of ($8,622,501). For a relatively small fund, like MSP, these losses are substantial and probably explain why it trades at a large discount.
The five-year figures are not great either. It appears that MSP had used leverage, much to its detriment. Although it does write a fair amount of options, this has not helped MSP produce income. The five-year ratios, in percentage terms, are as follows:
| 2011 | 2010 | 2009 | 2008 | 2007 | |
| Net Asset Return | (2.80) | 9.79 | 41.21 | (31.94) | (5.07) |
| Market Value Return | (9.24) | 14.01 | 55.81 | (36.18) | (16.85) |
| Operating Expenses | 0.98 | 0.98 | 1.04 | 1.07 | 0.98 |
| Net Income | 0.01 | (0.20) | (0.27) | 0.19 | 1.41 |
| Portfolio Turnover | 83 | 61 | 25 | 41 | 93 |
Disclosure: I am long MSP.
