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:
|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:
|Gilead Sciences (NASDAQ:GILD)||3.35%|
|State Street Bank (NYSE:STT)||3.30%|
|Affiliated Managers group (NYSE:AMG)||3.28%|
|Cisco Systems (NASDAQ:CSCO)||3.21%|
|Powershares QQQ Trust||3.05%|
|Wells Fargo (NYSE:WFC)||2.82%|
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:
|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)|
Disclosure: I am long MSP.