Clough Capital: 3 Interesting Closed-End Funds Are Quasi Hedge Funds

Includes: GLO, GLQ, GLV
by: Robert Lewis

Clough capital partners was founded in 2000 and manages approximately $3.8 billion in assets. $1.8 billion is in hedge funds and most of the balance in three closed-end funds. management invests globally with hedging strategies focusing on various global themes. Chuck Clough had been the chief global investment strategist at Merrill Lynch for 13 years before setting up his own management company.

The 3 closed-end funds, Clough Global Allocation (NYSEMKT:GLV), Clough Global Equity (GLE) and Clough Global Opportunity (NYSEMKT:GLO) all trade on the New York Stock Exchange. They have hedge fund attributes in that they use leverage and do maintain short positions as well as diverse portfolios in both equities and debt securities. In general all three are very similar and trade, as of December 9, 2011, at discounts from net asset value. GLV is at a 14.42% discount, GLQ at 14.59%, and GLO at a 15.4% discount. At these discount levels they are well worth considering. I found their portfolio composition and allocation to be extremely interesting.


As of September 20, 2011, the fund had gross assets of $149,374,598 of which $ 88,760,172 or 59,42% were borrowed funds. It also had short positions totaling $ 21,042,327.

Total expenses, for its last fiscal year, excluding interest expense and dividends on short sales, were 1.72% and net investment income was 2.65%. The fund has $ 16,893,117 in unrealized depreciation. Turnover was 78% for the last 6 months and 172% for the entire last year.

Asset allocation was primarily as follows:

Common stocks - US 44.25%
Common stocks - foreign 15.25%
Long term government bonds 16.00%
Corporate debt 7.20%
Short term investments 18.39%
ETFs (1.71%)

Assets were primarily invested in US. Securities, which represented 83.57% of the portfolio.


As of September 30, 2011, the fund had gross assets of $242,284,483 of which $144, 710,560 or 59.73% were borrowed funds and it was short $ 34,282,330 of securities of which $ 10,271,956 were ETFs and the balance common stock.

Total expenses, excluding interest and dividends on short positions was 2.12% with net investment income of 2.41%. The fund had net unrealized depreciation of $ 26,447,795. Turnover for the last 6 months was 72% and 173% for the entire prior year.

Primary asset allocation was as follows:

Common stocks - US 50.28%
Common stocks - foreign 15.63%
Long term government bonds 9.49%
Corporate debt 7.01%
Short term debt 18.95%
ETFs (1.93%)

83.38% of all assets were invested in the United States.


As of September 30, 2011, the fund had gross assets of $ 631,072,383 of which $ 380,936,357 or 60.36% were borrowed funds. The short position of $ 89,686,646 consisted of being short $ 62,971,440 in common stock and $26,715,206 in ETFs.

The fund had expenses, excluding interest and dividends on short sales of 2.28% and net investment income of 2.12%. Turnover was 77% for the last 6 months and 171% for the entire last year. Unrealized depreciation on investments was $ 77,505,673.

Primary asset allocation was as follows:

Common stocks - US 44.16%
Common stocks - foreign 15.36%
Long term government bonds 16.97%
Corporate debt 7.14%
Short term investments 18.11%
ETFs (2.25%)

83.50% of its portfolio is invested in the United States.


These funds are definitely worth a shot when selling at a discount from net asset value of 15%. Although they do have substantial leverage, they are primarily invested in bonds. if you apply the net asset discount to just the equity portion of the portfolio, then you are buying the equities at a discount of about 25%, which does give a substantial cushion. I am fully aware that their performance has been sub par but their strategy and approach are interesting and different. The unrealized depreciation is an added bonus. Operating expenses are high but that must be taken into account when considering their portfolio strategy. You are buying hedge funds cloaked as closed-end funds.

Disclosure: I am long GLO, GLQ, GLV.

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