Advent/Claymore Global Convertible Securities & Income Fund Looks Pretty Cheap

| About: Advent Claymore (AGC)

The Advent/Claymore Global Convertible Securities and Income Fund (NYSE:AGC) is a closed-end fund that was formed in May 2007. AGC seeks total return from current income and capital appreciation. The fund invests at least 80% of the portfolio in convertible securities or non-convertible income securities from US and non-US issuers:

  • At least 50% in convertible securities
  • Up to 40% in non-convertible income securities
  • At least 50% in foreign securities

The fund uses leverage and may invest in securities of any credit quality including securities below investment grade (e.g. junk bonds or high yield). AGC also uses a covered call option strategy on up to 25% of the portfolio, which allows it to pay out larger distributions.

This is the asset class breakdown as of Oct. 31, 2011:

Asset Class Breakdown (10/31/2011)

Convertible

78.76%

High Yield

14.94%

Cash

3.03%

AGC has a spotty NAV performance record. It has performed well in bull market periods and poorly in bear market periods. It was walloped in 2008, losing over 56% of its value.

I see it more as an attractive short-term swing trade here, rather than a long-term buy and hold investment. Here is the total return NAV performance record since inception:

2007

(partial year)

-4.59%

2008

-56.80%

2009

+55.62%

2010

+16.01%

YTD

-15.64%

US/International Allocation (as of October 31, 2011)

United States

47.76%

International

52.24%

Credit Quality Distribution

Investment Grade

20.38%

Below Investment Grade

35.73%

Not Rated

43.89%

Fund Management

Advent has managed convertible securities since inception in 1995. It has managed high-yield securities opportunistically in its convertible strategies and have managed a dedicated high-yield convertible strategy.

Here are some summary statistics on AGC:

Advent/Claymore Global Convertible Securities Income Fund

  • Total Assets: 401.1 Million Total Common assets: 316.1 Million
  • Annual Distribution (Market) Rate= 13.04%
  • Last Regular Monthly Distribution= $0.0664 (Annual= $0.7968)
  • Fund Expense ratio: 1.93% Discount to NAV= -12.96%
  • Portfolio Turnover rate: 125%
  • Credit Rating: 80% below investment grade or unrated.
  • Effective Leverage: 21.21% (1.43% interest rate)
  • Average Daily Volume (shares)= 103,000
  • Average Dollar Volume = $0.85 Million

AGC is currently selling at a discount to NAV of -12.96% compared with the 6-month average discount of -5.27%. The 1-Year Z-Statistic is -2.49. This means the current discount to net asset value is about 2.5 standard deviations below the one year mean.

AGC is a moderately liquid stock and usually trades with a bid-asked spread of about two cents but with fairly small lot sizes available on the bid and asked. I believe AGC has been hurt by recent tax loss selling and may be an attractive purchase at the current price level with the possibility of a narrowing discount and price increase early next year.

Disclosure: I am long AGC.

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