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GOF - The Popular Fund You Should Not Marry Into Your Portfolio

Maks F. S. profile picture
Maks F. S.


  • GOF is a closed-end fund sponsored by Guggenheim, seeking total return through a combination of capital gains and current income across numerous fixed income and equity markets.
  • The fund currently yields a 10.44% distribution and is trading at a PREMIUM of 8.78% to its Net Asset Value.
  • Guggenheim has recently divested its ETF business unit; questions remain about closed end funds.

Please Note: This article was first published for Income Idea subscribers on Thursday along with additional analysis and implementation ideas. All data in this article is as of 5/2/2018.

I have generally been a fan of actively managed funds where the management team has the flexibility to invest in a variety of asset classes where they best see fit, in line with the investment policy statements laid out in the prospectus documents.

For those reasons, many of my client portfolios will typically include a "strategic income" fund of some sort for fixed income investors. This could be either an open end mutual fund, ETF or a unit investment trust ('UIT').

Such funds typically outperform over longer periods of time, however, you do run into the issue where generally speaking "strategic" = "junk bonds." This applies to both taxable and tax free fixed income.

Where these funds are great, however, is that during flat or uncertain fixed income markets, by investing in go anywhere fixed income funds you are giving up that investment decision to the portfolio manager whom you believe has a better read on the market and more importantly is able to find those opportunities which neither you or I have access to as individuals.

Perhaps the most well known of such funds is the PIMCO Dynamic Credit Income Fund (PCI) which I wrote about in "PCI - Not For Me." My issue with the fund was that as great as it is performance wise there is a very hefty price, the lack of transparency around certain aspects and the exceptionally high leverage and fees.

Another fund that fits this bill and sponsored by one of my favorite managers is the Guggenheim Strategic Opportunities Fund (NYSE:GOF). While I have looked at it a number of times for myself, I

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This article was written by

Maks F. S. profile picture
Intrepid Leader at an RIA.  My firm and I simplify the lives of busy clients by providing ongoing financial planning and asset management. this is done by providing our clients customized, ongoing comprehensive financial planning, and customized investment advisory services tailored to the clients' needs. As a fiduciary, we have a legal obligation to put the needs and interests of our clients above our own. Specialties: fee based comprehensive financial planning, retirement planning, life insurance and protection planning.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (73)

How much of the distribution is ROC?
Jocko1997 profile picture
I made my first investment in GOF inside my Roth IRA back in 2014. The NAV back then was $22+ per share. As the NAV dropped, I continued reinvesting distributions.

I have taken out my original shares and have twice as much money as I originally invested.

Honestly, I could care less if the distributions were part return of capital.
Jocko1997 profile picture
I made myGOF inside my Rot
Sorry . Discussed here and other CEFs I own or follow. GOF outperforms in almost all instances. This statement is not made to refute your article which in my opinion has merit, there are issues with GOF. However from perspective with GOF being about 2% of total investable assets I am most comfortable
Mr. Maks
Great article and information. I ran an analysis of GOF versus CEFs discussied here
$$$ and sense profile picture
I don't mind paying a premium for a fund as long as it is near the low end of its 12 month range. That is not the case for GOF. At today's market price it is trading at a hefty 9.61% premium which is the highest its been over a 12 month period. Looking up at a premium pricing is one thing. But, looking up so high that it wrenches your neck, well that's another story. At 9.61% that's too high of a stretch for me.
You said some things that I didn't especially want to hear, but it is good well researched information. Thank you for not throwing out a salvo of "risk" word bombs. The more one studies risk the more one realizes what an emotion-based place it is, for 98% of the people who think they are experts. Thank you and thank SA for staying away from happytalk.
Maks F. S. profile picture
If you would like to see the full distribution analysis for GOF, you can download it here....

Permuddlologist profile picture
I’m just starting to learn about CEFs, but a Sortino of .6-something sounds really poor in comparison to most ETFs. Anything less than 1 and the return is lower than the downside risk. Why are Sortinos so low for CEFs? What am I missing?
Maks F. S. profile picture
Fees and leverage.
CEF Connect shows UNII of -$0.87 as of Nov 2017 and numerous months in 2017 when income and cap gains were insufficient to cover the distribution. Also there has been no ROC since 2016. Does this mean the uncovered 2017 distributions *must* be recharacterized as ROC?

And what's the basis for the snide remark about supermodels? :)
Maks F. S. profile picture
For the year ending Nov 2017 the fund paid out $24 million but earned around $15.

The fund essentially chose to lock in capital gains to "cover" the distribution otherwise it was essentially going to be return of capita. The distribution coverage for the year was nothing short of atrocious.

Including the "net unrealized appreciation"

"As we can see below, the fund had the $19.787 million net increase in value. At the same time, the fund paid out over $24.35 million in distributions! They over-distributed by over $6.56 million, or 33%."
murray555 profile picture
I don’t own GOF but I do own GPM, which I got at a 10+% discount. I also have 9% capital gain.

But I think it is prudent at this time to build cash and buy later at a better price.
Maks F. S. profile picture
Thanks for reading and your comment.

Cash is always cash... especially now.
Cash earns nothing.

Stocks produce dividends and if
not reinvested cash will always be
there for whatever the need.
I enjoy articles like this. Its not a "short" article with half truths to sway you to sell. Its the authors honest opinion why he would not add it to his portfolio. I did buy some GOF recently for the distribution and its consistency and plan to DRIP the distribution. The end game for all of us is to make money with our investments, but we each have our own preferred techniques. Maks (from the few articles I've read) tends to like to know exactly what he's invested in with very thorough analysis. I do like the Pimco funds along with my GOF because I feel like I'm paying management to diversify and hoping they derisk at the correct time. Its possible I get burned, and learned(hope not) but there are authors out there like this who at least warn me of either better investments or the possible pitfalls so I at least know what I'm getting myself into. Thanks for the article. Still long GOF at this point.
Maks F. S. profile picture
Thanks for reading and your comment.

This would certainly be a fund I buy in two scenarios..

1. The discount to NAV opens up and the distribution coverage becomes in check...

or 2. We are coming out of a recession and this would be a good leveraged trade.

People confuse a consistent distribution with an actual earned dividend and this is a consistent distribution... the fund has had major issues in most of the recent years. Fortunately, 2 REALLY good years bailed out the rest of the bad years.

Many CEF investors were brutally hurt in 2007 and I know I can't stop it... but what I can do is to hopefully get investors to open up those statements and read them for themselves.

I do believe you would enjoy the full article on GOF. Send me a message and will fwd it to you.
notaexpert profile picture
Thanks MAKS,

I tend to agree.

I sold both GOF and ETO for a nice Cap gain plus distributions as they were getting a bit pricey... I like both funds but not at current prices. You mentioned BIT which looks OK although it carries more leverage than GOF so a discount is deserved... I haven't looked real close at BIT but I will when I have more time...
Maks F. S. profile picture
Yep, leverage is higher but it did a FAR BETTER job covering the distribution. I was amazed myself.

I already finished the article on BIt and it is avail now to Income Idea subs in entirety. Will be public likely in a few days.
Gerard Kaman profile picture
Picked up GOF back in 2015 at 17.50. Straight to DRIP and just sold off half at 21.00 covering original investment and extra in the bank. Everything here on out straight profit.
I am a novice to CEFs and have an honest question - don’t the fees seem fairly high? According to Bloomberg the front load fee is 4.5% and the management fee is 1.44%. The expense ratio is 2.34% as well and so that is probably added to the management fee. It looks like fees are eating into your dividend, yes? Why not invest in a BDC or Mreit? Just asking.
Faithful Steward Investing profile picture
It is high for a CEF. But the fees do not come out of the distribution. They come out of fund operations, so they effectively are paid from the NAV.
Maks F. S. profile picture
There is no longer a front load.

That was a sales commission embedded into the product during the IPO.

The fund has its annual expense ration which WAS 2.34%. It is higher now because interest rates are up and the leverage expense is a large component of that.
I may start following PCI with the intent of investing for purposes of diversity. I also have positions in GPM which uses roc and GGM. Happy with all three.
According to dividend channel $10,000 invested in PCI and GOF, 2013 identical returns with dividends reinvested or not reinvested. So for the past 5 years the returns are similar. However, GOF was started in 2007 and the returns are quite good. Both investments have merit. Some excellent comments from many SA commenters.
Philipsonh profile picture
Too late, Mr Maks, I have owned GOF for years and have no intention of selling.
Reinvesting or not?
GOF has always been a good CEF to own. That doesn't mean you always need to hold a position in GOF, and if you do, how large that position should be. The fact that it can, and does hold equity positions can be a good or bad thing depending on how well the advisers instincts are. I currently do not hold any GOF, yet a year ago a had a large position. When the NAV began a slow decline, I slowly sold my position to zero. When the NAV begins to flatten and/or grow, I will begin rotating into GOF by selling something (slowly and in increments) that is not doing a well. BIT is the same, I currently have no position, but I assume I will return to having a position again at some point. Identifying good CEFs is easy. Deciding when to increase or decrease your position is more difficult. My best performer, and largest position today is PCI. It is not expensive, and it is performing better than almost any other CEF based on total return on NAV.
Sounds like a lot of work. I'd sooner not trade it, let the swings
happen, and be happy collecting the checks.
Faithful Steward Investing profile picture
AlieGee ~ I'm with you on that. I don't like trading in and out of funds, but I do rebalance positions to reduce portfolio volatility and to hedge risk.
notaexpert profile picture
Crowsfeet - I Agree... I like GOF..... I sold GOF a while back taking a nice CAP gain plus many distributions Right now GOF it is a bit on the pricey side... If the premium shrinks I will own it again. I sold ETO for the same reason... Both CEF's have been good to me and they are always on my watch lists.... Thanks MAKS...
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