7 Closed-End Funds Under the Microscope

by: Todd Johnson

I am looking at a few closed end funds (CEFs) to add to my portfolio for income and stability. I am examining the CEF's degree of leverage, CEF return for 3-year comparison versus the S&P 500, CEF portfolio holdings, and anomalies that make a name interesting as a solid income generator.

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Eaton Vance Tax-Managed Global (NYSE:EXG)
EXG is a global fund focused upon selling covered call options. The fund's holdings include Apple (NASDAQ:AAPL), and Exxon Mobil (NYSE:XOM). The fund has an attractive yield of 13% and is selling at a 11.23% discount to net asset value (NAV). I will have to pass because the fund could not beat the S&P 500 for the past 3 years. This is a name with zero leverage and a reasonable expense rate.
  • Leverage: 0%
  • Annual Expense Ratio: 1.06%
  • Market Cap: $3-billion
  • Discount Net Asset Value: -11.23%
  • Dividend Yield: 13%

NFJ Dividend, Interest & Premium Strategy Fund (NYSE:NFJ)
NFJ's focus is to develop current income with stocks possessing long-term growth potential. Typical holdings are dividend stocks, and convertible securities. The fund also sells covered calls to enhance returns.

The fund did beat the S&P 500 by 2.1% over the past 3 years. The lack of leverage, a reasonable expense ratio, and a 10.7% dividend yield are all positive factors. This is a name that will go on my radar screen.

Dividends are presently paid quarterly. The fund did have a 52-week high discount to NAV of 15.93%. The current price is not appealing. I am looking for a 10% discount to NAV. A solid discount to NAV provides some cushion against market downside. The fund's holdings are typical worldwide blue chip companies such as Pfizer (NYSE:PFE) and ConocoPhillips (NYSE:COP).

If I can obtain the fund at a 10% discount to NAV, I would consider hedging it with ProShares Short S&P 500 (NYSEARCA:SH).

  • Leverage: 0%
  • Annual Expense Ratio: .96%
  • Market Cap: $1.6-billion
  • Discount Net Asset Value: -1.52%
  • Dividend Yield: 10.7%

Calamos Strategic Total Return Fund (NASDAQ:CSQ)

CSQ attempts to derive high yield income through bonds, common stock, and preferred shares. The fund holds 178 securities providing a diverse asset base to earn its yield. The dividend is relatively low at 7.35%, but this yield beats many alternative investments. The dividend is 5.25 cents per share.

I own CSQ shares instead of holding significant cash levels. The NAV discount of 11.65% offsets the potential risk of a high leverage level. The CSQ 3 year total annualized rate of return was 19.5%. This compares to the S&P 500 return of 12%.
  • Leverage: 27.41%
  • Annual Expense Ratio: 2.23% (.77% is interest expense)
  • Net Market Cap: $2.064-billion
  • Discount to Net Asset Value: -11.65%
  • Dividend Yield: 7.35%

Gabelli Global Gold, Natural Resources & Income Trust (NYSEMKT:GGN)
GGN invests in gold stocks and natural resource stocks. GGN sells covered calls against the common stock holdings. The fund is operating at a moderate leverage level of 8.42%.

GGN pays a monthly 14 cents per share. This provides shareholders a 9.95% annual dividend return. GGN has rewarded shareholders a 17.7% total annualized rate of return for the past 3 years. This significantly beats the S&P 500 12% return over the same time frame.

GGN has consistently paid the 14 cents per share dividend. Gold and natural resource equities thrive in rising commodity time periods.

I own GGN and continue to add shares each month.
    • Leverage: 8.42%
    • Annual Expense Ratio: 1.5%
    • Net Market Cap: $1.1-billion
    • Premium to Net Asset Value: 2.12%
    • Dividend Yield: 9.95%

Eaton Vance Tax Advantaged Global Dividend Income Fund (NYSE:ETG)
ETG attempts to earn a high total return with current income and capital appreciation. The income strategy is through common share dividends and preferred stock dividends.

ETG pays an annual dividend yield of 9.1%. Monthly dividends are presently 10.25 cents. Top holdings include Chevron (NYSE:CVX), McDonald's (NYSE:MCD), and Philip Morris International (NYSE:PM).

I really like this name. The fund beat the S&P 500 3 year return by an average of 4.8%. My goal is to circle this name and wait for a higher discount to NAV. The current 3.76% discount compares to the 52-week high discount to NAV of 9.21%. If there is a market sell off, I will place a few stink bids in. I will hedge the position with a S&P 500 inverse ETF.
  • Leverage: 27.23%
  • Annual Expense Ratio: 1.51%; (.40% is interest expense)
  • Net Market Cap: $1.47-billion
  • Discount Net Asset Value: -3.76%
  • Dividend Yield: 9.1%

Tortoise MLP Fund, Inc. (NYSE:NTG)
NTG attempts to provide investors with a high dividend yield by investing in energy infrastructure master limited partnerships (MLP). One attractive aspect is the fund's tax reporting. The fund's structure and annual tax reporting eliminates from reporting each MLP K-1. Investors simply have to file the data from NTG. NTG began trading in late July 2010.

I immediately have to eliminate the fund from consideration due to its poor performance versus the ALPS Alerian MLP ETF (NYSEARCA:AMLP). AMLP began trading in August 2010 and has a 4.9% total annualized rate of return since its inception. The time frames, between AMLP and NTG, are fairly comparable. AMLP has outperformed NTG by 4.4%.

The fund is trading at a 3% premium to net asset value while leveraged at 23.96%. Until NTG can match the AMLP returns, I will have zero interest in this name.
  • Leverage: 23.96%
  • Annual Expense Ratio: .53%
  • Net Market Cap: $1.394-billion
  • Premium to Net Asset Value: 3.04%
  • Dividend Yield: 6.62%

ING Global Equity Dividend And Premium Opportunity Fund (NYSE:IGD)
IGD is a typical global CEF. The fund sells covered calls and buys blue chip stocks like Total SA (NYSE:TOT) and Kraft (KFT). IGD sold at its 52-week high discount to NAV on August 8th. The discount was 9.2%.

Currently the fund is selling at a 2% discount to NAV. Dividends are paid monthly at the rate of 10 cents per share. I will have to pass on this name due to its inability to keep up with the S&P 500 for the past 3 years. The yield, however, of 12.4%, makes me keep it on my radar screen for future purchase.

If the fund sold off to a 10-15% discount to NAV, then I would become interested in purchase. I would hedge with an inverse ETF that has a high correlation to the fund's basic holdings.
  • Leverage: 0%
  • Annual Expense Ratio: 1.07%
  • Market Cap: $964-million
  • Discount Net Asset Value: -2.02%
  • Dividend Yield: 12.4%

Disclosure: I am long CSQ, GGN.