New additions to Wells' CEFs to avoid


The two main reasons to stay away from a closed-end fund - too expensive or a distribution (usually a fat one) that isn't sustainable, and the eight added to Wells Fargo's "closed-end funds to avoid list" fit the bill.

The eight: The GDL Fund (GDL), Cushing Royalty & Income Fund (SRF), Guggenheim Enhanced Strategy Fund (GGE), Guggenheim Enhanced Equity Income Fund (GPM), Guggenheim Strategic Opportunities Fund (GOF), Aberdeen Australia Equity Fund (IAF), Pimco Income Strategy Fund (PFL), Pimco Income Strategy Fund II (PFN).

Like many fixed income CEFs, the Pimco funds have seen earnings declines, but the Wells team notes it's been particularly significant for those two, resulting in distribution coverage rates of just 65% and 77%. Given the continued low rate environment, either the distribution will have to be cut or NAV will erode.

The Australia fund has an 11.8% distribution rate - hardly a fit with the 0.1% annualized NAV return over the past three years.

Comments (11)
  • wkirk500
    , contributor
    Comments (358) | Send Message
     
    It surprises me that the very poor quality writing and content of the Barron's articles on Closed end Funds actually makes it through your vetting process. They just seem to get more nonsensical with every new article, Regards, W.Kirk
    28 Jan 2014, 03:31 PM Reply Like
  • GetRealHere
    , contributor
    Comments (380) | Send Message
     
    Most dastardly indeed my good sir. Swift degradation of quality writing is at center stage here. My utmost respect for your scathing rebuttal.

     

    Sincerely,
    Alfred E Newman III.
    17 Jan 2015, 04:37 AM Reply Like
  • Jmar705
    , contributor
    Comments (113) | Send Message
     
    It's funny how none of the poorly/under performing Well's CEF's aren't on this list. I'll remember to be concerned as I continue to cash the checks received from some of the above mentioned funds.
    28 Jan 2014, 03:45 PM Reply Like
  • Alan Young
    , contributor
    Comments (2412) | Send Message
     
    Anyone can glance at an earnings report and see whether GAAP earnings are covering the distribution. Professional analysts should be earning their pay by digging deeper into the non-GAAP financials, i.e. derivatives and swaps, to see what other income might be used to cover the payouts. I'm pretty sure these guys did not do this.
    28 Jan 2014, 03:50 PM Reply Like
  • andymarquettie
    , contributor
    Comments (3) | Send Message
     
    This article/statement is of zero value. It offers no explanation for it's bold comments. It's a little like a lawyer's statement of fact in an opening statement which is never subsequently supported with any evidence.
    28 Jan 2014, 08:14 PM Reply Like
  • lilsdad
    , contributor
    Comments (92) | Send Message
     
    Interesting to note that Wells Fargo is in the TOP TEN institutional holders of 7 of the 8 funds noted above. Now why do they want everybody to avoid them but them? I smell a rat.
    29 Jan 2014, 12:20 AM Reply Like
  • HackFab
    , contributor
    Comments (1276) | Send Message
     
    So far, I have seen no reason why I should not own the four Pimco funds in my IRA's.
    10 Feb 2014, 10:23 AM Reply Like
  • King Rat
    , contributor
    Comments (1545) | Send Message
     
    I apologize to all for addressing a 6 1/2 month old article. Here it goes with regards to the Allianz (Pimco) funds PFL and PFN. I would not be surprised if Cushing and Guggenheim funds were similar:

     

    "You can measure true "earnings" by following UNII changes. UNII measures total income earned since inception vs distributions paid. As of 1/31 PFL and PFN were -18.84¢ and -14.71¢ each. 3 months later they were - 8.13¢ and -11.01¢ meaning that while still negative (since inception) they have improved lately.
    Sure the market value of some of their holding may drop in a rising interest rate environment, but the cash payout of PFN's North Texas Tollway Authority's 8.91% bond due in 2030 is in no danger from rising interest rates.

     

    As for Australia (Aberdeen), it is very possible to pay a dividend but have a drop in share price. Australian stocks are very commodity-related and many commodities had a tough 2011-2013. For example, their top holding, BHP Billiton dropped in 2013 despite being profitable and paying a healthy dividend. There is too much nonsense going on here.
    14 Jul 2014, 06:47 PM Reply Like
  • 19651821
    , contributor
    Comments (48) | Send Message
     
    Well its been about 15 months since this insightful beauty was written, and in that time frame I'm up about 16% on GOF. Good thing I've ignored Wells Fargo's spot-on forecast of doom and gloom.
    24 Mar 2015, 05:47 PM Reply Like
  • lilsdad
    , contributor
    Comments (92) | Send Message
     
    Yes, GOF is my largest single holding at 10% of my portfolio. They have never cut the div. since inception in 2007, and have had 3 increases. I would love to add more, but I don't want to go over 10%.
    25 Mar 2015, 11:09 AM Reply Like
  • CzechMale
    , contributor
    Comments (32) | Send Message
     
    When I look at GOF now, i.e. 20 months later, I can see this SA News Editor was dead wrong.
    13 Sep 2015, 12:48 PM Reply Like
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