Weekly Closed-End Fund Roundup: ASG Rights Offering Terms Announced, Distribution Boosts To MGU And DNI

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Includes: ASG, BBN, BCX, BDJ, BGH, BGR, BGT, BGY, BHK, BIT, BKT, BLW, BME, BOE, BST, BTZ, BUI, CCA, CEM, CIF, CII, CTR, CXE, CXH, DDF, DEX, DNI, DSU, EGF, EIA, EIM, EIV, EMD, EVG, EVN, EVY, FEO, FRA, GCV, GIM, GLU, GMZ, HIE, HYT, IIM, JFR, JHY, JQC, JRO, JSD, LDF, MCR, MFV, MGF, MGU, MIN, MMT, MYF, NAD, NEV, NHA, NIM, NIQ, NKG, NKX, NMS, NMT, NMZ, NNC, NPN, NPV, NQP, NSL, NUO, NYH, NYV, OIA, PCN, PGP, PYN, RCS, SPHD, SRF, TDF, TEI, UTF, VCF, VKI, VKQ, VTN
by: Stanford Chemist
Summary

Two out of 31 CEF sectors were positive on price while none were positive on NAV.

Terms of ASG offering announced, suggest to sell now.

Two big distribution boosts from MGU and DNI, but more muni cuts from Nuveen and Eaton Vance.

The Weekly Closed-End Fund Roundup summarizes recent price movements in closed-end fund [CEF] sectors in the last week, as well as to highlight recently concluded or upcoming corporate actions on CEFs, such as tender offers. Most of the information has been sourced from CEFInsight or the Closed-End Fund Center. I will also link to some articles from Seeking Alpha that I have found for useful reading over the past week. The searchable tag for this feature is "cildoc". Data are taken from the close of Friday September 7, 2018.

Weekly performance roundup

This was a difficult week for CEFs. Only 2 out of 31 sectors were positive on price (down from 17 last week) and the average price return was -0.15% (down from -0.06%). The only two positive sectors were New York munis (+0.11%) and utilities (+0.08%). The biggest losers were Asia equity (-3.79%), emerging market equity (-3.31%), other non-U.S. equity (-3.25%), energy/resources (-2.70%) and Latin America equity (-2.27%).

(Source: Stanford Chemist, CEFConnect)

0 out of 31 sectors were positive on NAV (down from 16 last week), while the average NAV return was -1.00% (down from -0.04%). No sectors were positive on a NAV basis.

(Source: Stanford Chemist, CEFConnect)

The sector with the highest premium is multisector income (3.82%), while the sector with the highest discount is New Jersey munis (-13.91%). The average sector discount is -6.42% (down from -6.29% last week).

(Source: Stanford Chemist, CEFConnect)

Utilities showed the largest premium/discount increase (+0.67%), while US MLPs showed the largest premium/discount decline (-0.74%). The average change in premium/discount was -0.13% (down from 0.00% last week).

(Source: Stanford Chemist, CEFConnect)

The sector with the highest average 1-year z-score is tax-advantaged equity (+1.03) while the sector with the lowest z-score is emerging market equity (-1.78). The average z-score is -0.16 (down from -0.11 last week).

(Source: Stanford Chemist, CEFConnect)

The sector with the highest yield is MLPs (9.77%), followed by emerging market income (9.67%), global growth & income (9.56%), global equity dividend (9.26%) and multisector income (8.48%). Discounts and z-scores for the sectors are included for comparison. The average sector yield is 6.83% (up from 6.75% last week).

(Source: Stanford Chemist, CEFConnect)

Individual CEFs that have undergone a significant decrease in premium/discount value over the past week, coupled optionally with an increasing NAV trend, a negative z-score, and/or are trading at a discount, are potential buy candidates.

Ticker

P/D decrease

Yield

P/D

z-score

Price change

NAV change

(GCV)

-8.55%

7.96%

5.42%

-0.2

-8.77%

-1.38%

(TDF)

-7.06%

8.46%

-18.14%

0.5

-10.78%

-3.08%

(FEO)

-3.34%

11.07%

-14.41%

-2.6

-5.74%

-2.05%

(BME)

-2.81%

5.95%

3.15%

0.6

-3.14%

-0.51%

(BGH)

-2.34%

9.21%

-6.31%

0.5

-2.72%

-0.29%

(EMD)

-2.23%

9.10%

-12.60%

0.2

-2.87%

-0.40%

(GMZ)

-2.16%

9.24%

-8.27%

-2.0

-3.09%

-0.80%

(CXE)

-2.08%

5.70%

-5.08%

0.0

-2.32%

-0.19%

(CXE)

-2.08%

5.70%

-5.08%

0.0

-2.32%

-0.19%

(NEV)

-1.94%

4.90%

-5.23%

0.2

-2.08%

-0.07%

(Source: Stanford Chemist, CEFConnect)

*NB. Current discount of TDF is -12.26%. There appears to be have been a mistake with CEFConnect when the data was sourced and processed.

Conversely, individual CEFs that have undergone a significant increase in premium/discount value in the past week, coupled optionally with a decreasing NAV trend, a positive z-score, and/or are trading at a premium, are potential sell candidates.

Ticker

P/D increase

Yield

P/D

z-score

Price change

NAV change

(DDF)

5.90%

8.53%

15.34%

3.1

4.85%

-0.51%

(PYN)

5.60%

5.03%

13.91%

2.5

4.46%

-0.67%

(PGP)

4.74%

10.14%

38.45%

0.3

1.69%

-1.79%

(GLU)

4.36%

6.07%

-3.98%

2.3

4.00%

-0.72%

(RCS)

3.34%

8.52%

40.25%

2.0

2.01%

-0.41%

(SRF)

2.86%

5.19%

-13.55%

0.7

0.32%

-2.99%

(HIE)

2.84%

10.94%

5.91%

1.5

2.25%

-0.50%

(PCN)

2.54%

7.29%

25.39%

2.3

1.93%

-0.14%

(MYF)

2.54%

5.82%

1.06%

0.5

2.21%

-0.35%

(NYV)

2.12%

3.70%

-9.46%

-0.3

2.07%

-0.33%

(Source: Stanford Chemist, CEFConnect)

Recent corporate actions

These are from the last month and are quoted from Closed-End Fund Center, Morningstar, or CEFInsight (email alerts); any new news in the past week has a bolded date:

None.

Upcoming corporate actions

These are from the last month and are quoted from Closed-End Fund Center, Morningstar, or CEFInsight (email alerts); any new news in the past week has a bolded date:

September 7, 2018 | The Liberty All-Star® Growth Fund, Inc. (ASG) today announced that it has set the record date for its previously announced rights offering. The Fund is issuing non-transferable rights (“Rights”) to its shareholders of record (“Record Date Shareholders”) at the close of business on September 17, 2018 (ex-date of September 14, 2018). Record Date Shareholders will receive one Right for each share held and will be allowed to purchase one additional share of the Fund for each three Rights received (the “Primary Subscription”). Shareholders who fully exercise their Rights may subscribe for additional shares not subscribed for by other shareholders in the Primary Subscription. If such oversubscription requests exceed the number of shares available, the Fund may, in its sole discretion, elect to issue additional shares in an amount of up to 25% of the shares issued in the Primary Subscription. The rights offering is expected to commence on or about September 21, 2018 and to expire on or about October 23, 2018. The subscription price per share will be 95 percent of the reported net asset value or market price per share, whichever is lower on the expiration date. Market price per share will be determined based on the average of last reported sales prices of a share on the New York Stock Exchange on the expiration date and the four trading days preceding the expiration date.

August 22, 2018 | The Board of Directors of The Gabelli Convertible and Income Securities Fund (NYSE:GCV) (the “Fund”) has approved a transferable rights offering which would allow the Fund’s record date common shareholders to acquire additional shares of common stock (the “Offering”). Each shareholder will receive one transferable right (the “Right”) for each share of common stock held on the record date (September 5, 2018). Three Rights plus $5.25 (the “Subscription Price”) will be required to purchase one additional share of common stock (the “Primary Subscription”). Record date shareholders who fully exercise their Primary Subscription Rights will be eligible for an over-subscription privilege entitling these shareholders to subscribe, subject to certain limitations and a pro-rata allotment, for any additional shares of common stock not purchased pursuant to the Primary Subscription. Rights acquired in the secondary market may not participate in the over-subscription privilege. The Rights are expected to trade “when issued” on the New York Stock Exchange beginning on August 31, 2018, and the Fund’s shares of common stock are expected to trade “Ex-Rights” on the New York Stock Exchange beginning on September 4, 2018. The Rights are expected to begin trading for normal settlement on the New York Stock Exchange (NYSE:GCV RT) on or about September 10, 2018. The Offering expires at 5:00 PM Eastern Time on October 17, 2018, unless extended.

August 7, 2018 | The Latin American Discovery Fund, Inc. (NYSE:LDF) (the “Fund”) announced today that its Board of Directors approved the liquidation and dissolution of the Fund, subject to stockholder approval at the meeting of stockholders to be held on October 19, 2018.

Recent activist or other CEF news

These are from the last month and are quoted from Closed-End Fund Center, Morningstar, or CEFInsight (email alerts); any new news in the past week has a bolded date:

September 7, 2018 | BlackRock Advisors, LLC announced today that the Boards of Directors/Trustees of twenty BlackRock taxable fixed-income and equity closed-end funds (the “Funds”) have authorized the renewal of open market share repurchase programs (the “Repurchase Programs”). Under each Fund’s current Repurchase Program, each Fund may repurchase, through November 30, 2018, up to 5% of its outstanding common shares (based on common shares outstanding on November 30, 2017) in open market transactions. Pursuant to the Board’s renewal of the Repurchase Programs, commencing on December 1, 2018, each Fund may repurchase up to 5% of its outstanding common shares (based on common shares outstanding on November 30, 2018) in open market transactions through November 30, 2019. The Repurchase Programs seek to enhance shareholder value by purchasing Fund shares trading at a discount from their net asset value (“NAV”) per share, which could result in incremental accretion to a Fund’s NAV.

The Funds that have authorized the renewal of a Repurchase Program are as follows:

Ticker (NYSE) Fund CUSIP
(BGR) BlackRock Energy and Resources Trust 09250U101
(CII) BlackRock Enhanced Capital and Income Fund, Inc. 09256A109
(BDJ) BlackRock Enhanced Equity Dividend Trust 09251A104
(BOE) BlackRock Enhanced Global Dividend Trust 092501105
(BME) BlackRock Health Sciences Trust 09250W107
(BGY) BlackRock Enhanced International Dividend Trust 092524107
(BCX) BlackRock Resources & Commodities Strategy Trust 09257A108
(BST) BlackRock Science and Technology Trust 09258G104
(BUI) BlackRock Utilities, Infrastructure & Power Opportunities Trust 09248D104
(BBN) BlackRock Taxable Municipal Bond Trust 09248X100
(BHK) BlackRock Core Bond Trust 09249E101
(HYT) BlackRock Corporate High Yield Fund, Inc. 09255P107
(BTZ) BlackRock Credit Allocation Income Trust 092508100
(EGF) BlackRock Enhanced Government Fund, Inc. 09255K108
(FRA) BlackRock Floating Rate Income Strategies Fund, Inc. 09255X100
(BGT) BlackRock Floating Rate Income Trust 091941104
(BKT) BlackRock Income Trust, Inc. 09247F100
(BLW) BlackRock Limited Duration Income Trust 09249W101
(BIT) BlackRock Multi-Sector Income Trust 09258A107
(DSU) BlackRock Debt Strategies Fund, Inc. 09255R202

August 17, 2018 | ClearBridge Energy MLP Fund Inc. (the “Fund”) (NYSE: CEM) announced today that the Board of Directors of the Fund has approved a change to the Fund’s name. Effective on or about October 22, 2018, the Fund’s name will be ClearBridge MLP and Midstream Fund Inc. In addition, also effective on or about October 22, 2018, under normal market conditions the Fund will invest at least 80% of its managed assets in energy master limited partnerships (“MLPs”) and energy midstream entities. Currently, the Fund’s investment policy provides that at least 80% of its managed assets be invested in energy MLPs. The name change and investment policy amendment should allow additional investment flexibility by permitting greater investments in midstream entities organized as C corporations. Management does not anticipate any material change in the portfolio construction in the near term because of these changes.

August 17, 2018 | ClearBridge Energy MLP Total Return Fund Inc. (the “Fund”) (NYSE: CTR) announced today that the Board of Directors of the Fund has approved a change to the Fund’s name. Effective on or about October 22, 2018, the Fund’s name will be ClearBridge MLP and Midstream Total Return Fund Inc. In addition, also effective on or about October 22, 2018, under normal market conditions the Fund will invest at least 80% of its managed assets in energy master limited partnerships (“MLPs”) and energy midstream entities. Currently, the Fund’s investment policy provides that at least 80% of its managed assets be invested in energy MLPs. The name change and investment policy amendment should allow additional investment flexibility by permitting greater investments in midstream entities organized as C corporations. Management does not anticipate any material change in the portfolio construction in the near term because of these changes.

Distribution changes announced this month

These are sorted in ascending order of distribution change percentage. Funds with distribution changes announced this month are included. Any distribution declarations made this week are in bold. I've also added monthly/quarterly information as well as yield, coverage (after the boost/cut), discount and 1-year z-score information. I've separated the funds into two sub-categories, cutters and boosters.

Cutters

Name Ticker Change Previous Current Yield Discount z-score Coverage Announced Ex-date
EV NY Municipal Income (EVY) -13.4% 0.05 0.0433 4.27% -11.43% 0.1 115% 9/4/2018 9/13/2018
EV Municipal Income (EVN) -12.4% 0.0541 0.0474 4.74% -7.48% 0.3 111% 9/4/2018 9/13/2018
Nuveen Inter Dur Quality Muni (NIQ) -10.6% 0.033 0.0295 2.85% -8.60% -1 117% 9/4/2018 9/13/2018
EV NY Muni Bond II (NYH) -9.6% 0.0439 0.0397 4.46% -13.81% -0.5 105% 9/4/2018 9/20/2018
EV CA Muni Bond II (EIA) -9.5% 0.0442 0.04 4.47% -12.60% -0.5 103% 9/4/2018 9/20/2018
Nuveen GA Quality Muni Income (NKG) -9.2% 0.038 0.0345 3.70% -15.02% -1.1 107% 9/4/2018 9/13/2018
Nuveen Muni 2021 Target Term (NHA) -9.1% 0.0165 0.015 1.90% -2.87% -0.7 116% 9/4/2018 9/13/2018
Delaware Invest CO Muni Income (VCF) -9.1% 0.055 0.05 4.08% -0.07% 0.7 102% 9/4/2018 9/13/2018
Nuveen Enhanced Muni Value (NEV) -8.9% 0.062 0.0565 4.90% -5.23% 0.2 110% 9/4/2018 9/13/2018
Nuveen CA AMTFree Qlty Muni In (NKX) -8.0% 0.056 0.0515 4.60% -11.58% -0.9 109% 9/4/2018 9/13/2018
Nuveen MA Quality Muni Income (NMT) -7.9% 0.0445 0.041 4.01% -12.80% -1.2 104% 9/4/2018 9/13/2018
Nuveen NC Quality Muni Income (NNC) -7.7% 0.039 0.036 3.49% -13.31% 0.1 108% 9/4/2018 9/13/2018
Nuveen MN Quality Muni Income (NMS) -7.3% 0.055 0.051 4.64% -8.97% -1.3 99% 9/4/2018 9/13/2018
Nuveen High Income 2020 Target (JHY) -7.1% 0.042 0.039 4.76% 0.66% 0.1 103% 9/4/2018 9/13/2018
Nuveen Quality Muni Income (NAD) -7.0% 0.0575 0.0535 4.88% -11.86% -0.6 109% 9/4/2018 9/13/2018
Nuveen PA Quality Muni Income (NQP) -6.9% 0.0505 0.047 4.45% -14.09% -0.2 111% 9/4/2018 9/13/2018
EV Municipal Bond (EIM) -6.9% 0.0479 0.0446 4.54% -9.94% -0.3 113% 9/4/2018 9/20/2018
EV Municipal Bond II (EIV) -6.9% 0.048 0.0447 4.52% -7.45% 1.2 106% 9/4/2018 9/20/2018
Invesco Municipal Trust (VKQ) -6.7% 0.0563 0.0525 5.35% -9.32% -0.3 113% 9/4/2018 9/13/2018
Nuveen OH Quality Muni Income (NUO) -6.2% 0.0485 0.0455 3.97% -14.16% -0.6 109% 9/4/2018 9/13/2018
Nuveen Muni High Inc Opp (NMZ) -5.8% 0.06 0.0565 5.20% -1.29% 0.2 108% 9/4/2018 9/13/2018
Nuveen PA Municipal Value Fund (NPN) -5.8% 0.043 0.0405 3.60% -8.54% -1.6 104% 9/4/2018 9/13/2018
Nuveen VA Quality Muni Income (NPV) -5.4% 0.046 0.0435 4.33% -14.05% -1.5 106% 9/4/2018 9/13/2018
MFS California Municipal Fund (CCA) -5.0% 0.04 0.038 4.43% -14.92% -0.9 115% 9/4/2018 9/18/2018
Invesco Trust NY Inv Gra Mn (VTN) -5.0% 0.0583 0.0554 5.25% -9.51% -1 101% 9/4/2018 9/13/2018
Invesco Muni Income Opps Trust (OIA) -4.7% 0.0344 0.0328 4.94% 7.33% 1.8 108% 9/4/2018 9/13/2018
Invesco Adv Muni Inc II (VKI) -4.6% 0.0517 0.0493 5.48% -7.38% 0.4 112% 9/4/2018 9/13/2018
Invesco Value Muni Income (IIM) -4.2% 0.062 0.0594 5.00% -8.88% 0.5 105% 9/4/2018 9/13/2018
MFS Investment Grade Muni (CXH) -2.5% 0.04 0.039 5.13% -11.88% -1.6 100% 9/4/2018 9/18/2018
Delaware Enhanced Gbl Div&Inc (DEX) -1.2% 0.1014 0.1002 10.94% -6.47% 0.3 39% 9/4/2018 9/13/2018
MFS Government Markets Income (MGF) -0.5% 0.029 0.02886 7.77% -6.30% -0.8 36% 9/4/2018 9/18/2018
Templeton Emerging Mkts Income (TEI) -0.4% 0.0748 0.0745 9.05% -10.34% -0.2 95% 9/4/2018 9/13/2018
MFS Intermediate Income (MIN) -0.4% 0.02932 0.02921 9.25% -7.79% -0.9 26% 9/4/2018 9/18/2018

Name Ticker Change Previous Current Yield Discount z-score Coverage Announced Ex-date
MFS Charter Income (MCR) 0.1% 0.05834 0.05838 8.90% -9.95% -0.9 49% 9/4/2018 9/18/2018
MFS Multi-Market Income (MMT) 0.1% 0.04157 0.0416 8.88% -9.65% -0.5 50% 9/4/2018 9/18/2018
MFS Intermediate High Income (CIF) 0.5% 0.02047 0.02057 9.42% 0.77% -0.4 59% 9/4/2018 9/18/2018
MFS Special Value Trust (MFV) 0.5% 0.04709 0.04733 9.91% 0.88% -0.7 28% 9/4/2018 9/18/2018
Delaware Inv Div & Inc (DDF) 0.7% 0.0961 0.0968 8.53% 15.34% 3.1 26% 9/4/2018 9/13/2018
Nuveen Select Maturities Muni (NIM) 1.9% 0.026 0.0265 3.31% -7.42% -1.3 102% 9/4/2018 9/13/2018
EV Short Duration Diversified (EVG) 2.3% 0.065 0.0665 6.20% -13.16% -1.4 87% 9/4/2018 9/20/2018
Nuveen Shrt Duration Cred Opps (JSD) 3.0% 0.1005 0.1035 7.47% -6.99% -1.7 97% 9/4/2018 9/13/2018
Nuveen Credit Strat. Income (JQC) 4.1% 0.037 0.0385 5.77% -12.46% -1.1 101% 9/4/2018 9/13/2018
Nuveen Floating Rate Inc Opps (JRO) 4.3% 0.058 0.0605 7.13% -11.01% -1.6 95% 9/4/2018 9/13/2018
Nuveen Floating Rate Income (JFR) 4.3% 0.0575 0.06 7.00% -10.76% -1.6 97% 9/4/2018 9/13/2018
Nuveen Senior Income (NSL) 6.0% 0.0335 0.0355 6.93% -10.74% -1.8 97% 9/4/2018 9/13/2018
Templeton Global Income (GIM) 9.2% 0.0325 0.0355 5.94% -13.17% -1 85% 9/4/2018 9/13/2018
Macquarie Glb Infrast TR Fund (MGU) 13.5% 0.37 0.42 7.63% -12.72% -0.8 27% 9/6/2018 9/17/2018
Dividend and Income Fund (DNI) 33.3% 0.15 0.2 6.57% -23.56% -2 7% 9/4/2018 9/17/2018

CEF analysis from around Seeking Alpha...

ADS Analytics presents Weekly Fund Wrap: Summer Sunshine (Sep. 3)

Alpha Gen Capital presents Guggenheim Strategic Opp Looks Risky Here But Distribution Is Safe (Sep. 5)

Arbitrage Trader presents Weekly Review: Senior Loan CEFs (Sep. 4), Weekly Review: High-Yield CEFs - This 7.76% Yielder Is Traded At 12.73% Discount (Sep. 4), Weekly Review: Municipal Bond CEFs - The Investors May Change Again Their Focus To Safer Assets (Sep. 5), Weekly Review: Master Limited Partnership CEFs (Sep. 5) and Weekly Municipal Bond CEF Trades: A New York Muni At 14.75% Discount With An Eventual Hedging Reaction (Sep. 5)

*Stanford Chemist presents Weekly Closed-End Fund Roundup: NDP Is A Sell (Sep. 4) and The Chemist's CEF Report - August 2018: Equity CEFs Starting To Come Down To Earth? (Sep. 6)

*To subscribers: these link to the public version of the article, which you will already have seen in the members section.

Macro/market section

Fear & Greed Trader presents S&P 500 Weekly Update: Stay The Course And Look For Opportunity In This Tricky Market Period (Sep. 8)

Jeff Miller presents Weighing The Week Ahead: Inflation Watch (Sep. 9)

Lance Roberts presents It's Make Or Break (Sep. 10)

Commentary and actionable takeaway

(normally exclusive to members of the CEF/ETF Income Laboratory, but I wanted highlight several good calls our members received in advance)

In our Roundup from two weeks ago, we suggested selling Gabelli Convertible and Income Securities Fund (GCV) due to its upcoming rights offering.

Holders of GCV are advised to sell immediately and wait for the dust from the rights offering to settle. You can always buy back the shares at a lower valuation later, allowing your income to compound at a faster rate.

Last week, the fund went ex-rights, resulting in an immediate 60 cent fall (~9%) in its share price. Was this drop justified?

Chart

GCV Price data by

YCharts

The day before GCV went ex-rights, it was trading at a share price of $6.61 and a NAV of $5.80 (+13.97% premium). Since every 3 rights allows the purchase of 1 new share of GCV at a fixed price of $5.25, the intrinsic value of the rights should have been ($6.61 - $5.25)/3 = 45 cents. Indeed, the rights opened for trading at 40 cents, close to their intrinsic value.

However, what market participants evidently got wrong was that the downwards adjustment of the share price on the ex-date itself has an impact on the rights price, because the rights price is fixed at $5.25 (the effect would not be as pronounced with other subscription formulae that we've seen that base the subscription price on a certain percentage of the share price or NAV). When the share price of the fund fell from $6.61 to $6.01 on ex-rights day, the new intrinsic value of the rights became ($6.01 - $5.25)/3 = 25 cents.

Regardless, it is clear that the actual drop of the share price on ex-rights day (60 cents) was significantly greater than the intrinsic value of the rights calculated for either scenario (45 cents or 25 cents). This once again supports our hypothesis that selling before ex-rights day is usually the most prudent course of action to take. One can always buy back the fund and/or the rights after the ex-rights day in order to take part in the offering, should one desire (with the caveat that rights purchased on the secondary market will usually no longer be eligible for the oversubscription privileged).

What should an investor do if he held GCV through ex-rights day and are now holding both GCV common shares and rights? As of writing, GCV is trading at a share price of $5.90 meaning that the intrinsic value of 1 right is now 22 cents. However, the rights themselves are now trading at 13 cents, far below their intrinsic value. Therefore, selling the rights at this juncture would not be recommended, and subscribing would thus be the most optimal course of action. However, if you notice the rights price creeping back up towards or even above their intrinsic value, then selling the rights may be preferable especially if one does not desire increased exposure to the fund (feel free to send me a message in the chat if you want me to calculate the intrinsic value of the rights for you at any time). As a reminder, the worst thing you can do for a transferable rights offering is to do nothing and let the rights expire; one should either subscribe or sell the rights. The offer will expire on October 17, 2018.

Another rights offering-related news is the announcement from Liberty All-Star® Growth Fund, Inc. (ASG) regarding the details of the offer. This 1-for-3 non-transferable offering will go ex-rights on September 14, 2018. Since the offering is non-transferable, shareholders should always subscribe fully to minimize the effect of dilution. Obviously, one can side-step the question by selling the fund before the ex-rights date (this Friday) which is what I recommend. The subscription price will be the lower of 95% of the price or 95% of the NAV, opening up the possibility of a "vicious cycle" of widening discount and lower prices. I recommend sitting out this offer until the dust settles. Based on history, it is likely that the current premium of the fund will become compromised during the offering period.

(Sep. 21, 2018 update: As expected, ASG's premium collapsed after the ex-rights date passed. Unfortunately, the rights received do not compensate for the magnitude of the share price lost.)

The turn of the month brings distribution change announcements from the major fund houses. We saw 33 cuts and 15 boosts announced in the first week of September. The majority of the cuts were muni funds from Nuveen and Eaton Vance, indicating that the current structural headwinds being faced by this sector (as discussed in last month's Chemist's CEF Report) show no signs of abating.

On the positive side, we saw a large increase for the Macquarie Global Infrastructure Total Return Fund (MGU), which boosted from $0.37 to $0.42 quarterly (+13.5%), and an even larger increase for the Dividend and Income Fund (DNI), which boosted from $0.15 to $0.20 quarterly (+33.3%). However, only one of the two funds is worth owning for the long-term, and that is the fund that we already own in the Tactical Income-100 portfolio, MGU.

MGU currently yields 7.63% on a forward basis and trades with a discount of -12.72% and a z-score of -0.8. Among the global utilities/infrastructure CEFs, it has been one of the best at preserving NAV over the last 7 years (chart only goes back to the inception of the newest fund in the peer group, BUI) at +37.79% NAV return (excluding dividends), second only to Cohen & Steers Infrastructure Fund (NYSE:UTF) at +38.92%. Hopefully, the distribution boost will help MGU close its discount going forward, giving us additional capital gains in addition to the higher dividend.

Chart

MGU Net Asset Value

data by

YCharts

DNI now yields 6.57% at the new distribution. But despite its whopping -23.56% discount (!) and -2.0 z-score, I would not consider owning DNI for the long term. DNI is classed as as "growth and income" CEF by CEFConnect but actually its portfolio is nearly entirely equities, and long-time members know what I think about general domestic equity CEFs (not highly).

Compared to two other domestic equity funds we own in our portfolios, Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD), or BlackRock Enhanced Equity Dividend Trust (BDJ), the long-term underperformance of DNI becomes clear on either price or NAV return bases.

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DNI Net Asset Value data by

YCharts

Thus, I would only consider buying DNI as a short-term trade hoping for mean reversion, but in my opinion it is not a good long-term investment, even though its discount is the widest in 5 years (side note: who was buying this fund at at par four years ago?!).

Finally, Delaware Investments Dividend and Income Fund (DDF) gained +5.90% in premium last week (the top gainer) and it has officially gone parabolic. At last Friday's close it ended with a premium of +15.45% and a 1-year z-score of +3.1. At time of writing, it's added another +2.85% during market hours meaning that it is going to become even more overvalued by the end of today if prices hold. Sell now!

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DDF data by

YCharts

If not, then perhaps this 5-year premium/discount chart will:

Oh, the insanity of CEF investors!

Unfortunately, IBorrowDesk shows that there they have been zero shares available to short since last Wednesday (and then only at an outrageous fee of 26.6%). Apparently, many traders have latched on to the irrationally high premium of the fund and are betting for it to fall in the near future.

(Sep. 21, 2018 update: DDF has fallen -8.4% since this idea was initially released, with its premium dropping from +17.81% to +6.17%. However, I still think that the CEF is moderately overvalued at its current valuation.)

Please note: This article was first released to members of CEF/ETF Income Laboratory 2 weeks ago, so data may be out of date. Please check latest data before making investment decisions.

Disclosure: I am/we are long THE PORTFOLIO SECURITIES. 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.