Four Reasons to Like Nuveen Multi-Strategy Income and Growth Fund

I recently purchased a position in Nuveen Multi-Strategy Income and Growth Fund (JQC). This is a closed-end fund that invests in preferred securities, convertible securities and related instruments, common stocks, and debt instruments, including high yield debt and senior loans. The fund uses leverage currently at 39%. I own JQC in an IRA account because of the high distribution rate.

Here are some things I like about JQC:

1. Discount to NAV on Friday= -14.19% which is at the high end of its discount range. Over the last year, the average discount is around -12%. There is a good chance the discount will revert to the mean.
2. The fund borrows at very attractive interest rates. Over the last three days, the reported borrowing rates were 3.03%, 3.07%, 2.92%. As a retail investor, if you tried to replicate this fund in a margin account, your borrowing rate would be much higher than 3%.
3. Expense ratio of 0.78% is well below average.
4. The fund has been paying quarterly distributions of 0.285 or 12.17% annualized. These distributions allow you to recover a good portion of the NAV discount each year.

Full Disclosure: I am long JQC.

Comments

[Indexor:]

Anyone buying CEFs, especially one that is levered, must have a 1980's mindset. Good luck!

2008 Aug 03 12:35 PM

[mikecupertino:]

The ROR on this fund since inception taking into account price change and dividends (using the excel function IRR) is -6.5%. I realize that past performance is not a perfect indicator of future performance, but I don't understand why anyone would both buy and recommend others to consider buying a fund with a 5 year history of negative total returns to investors. JQC is a dog.

Also, according to Morningstar, the expense ratio is 1.02% and the turnover rate is 78% which jacks up expenses even more.

2008 Aug 03 01:16 PM

[George Spri...:]

Morningstar's expense ratio incorrectly includes cost of borrowing. This is part ot the investment- not a true management expense.

Most closed end funds revert to the mean over time. They are not like individual stocks. Investing involves looking forward, not looking backward at the ROR. When this fund first came out it sold at a premium and now it sells at a discount. It has also been knocked down by the credit crisis.

This fund is for fairly aggressive investors, and I would recommend scaling in over time in case the credit crisis lasts into 2009.

2008 Aug 03 02:35 PM

[George Spri...:]

Mike- The 5 year ROR return through June 30, 2008 on etfconnect is +4.21% (not -6.5%; check your calculations, you may have left out some dividends or distributions).

I always look at NAV historical return, not market return, when evaluating a closed end fund. In fact I prefer a lower historical market return since that means the discount is higher.

2008 Aug 03 02:47 PM

[glava:]

I've owned JQC for many years in a taxable account for income. Like George says, looking at total returns associated with CEF's (treating them like stock) doesn't make much sense for the long term. Current yield and it's potential for future yield is what's important. Also, the fund's distribution last year payed out 18% in qualified dividends and 5% in return-on-capital.

2008 Aug 04 11:08 AM

[oldman:]

they cannot be earning their distribution so expect ROC and decling NAV. I hate funds that don't grow NAV.

2008 Aug 05 09:38 PM