GAMCO Global Gold, Natural Resources & Income Trust: 15% Yield Likely Not Sustainable

Summary

• Distribution has held steady for the last 2 years, but the NAV has continued to erode.
• The fund has outperformed the combined benchmark due to its option strategy.
• Unless energy and mining sectors rebound imminently, the 15% yield is not sustainable.
• This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Start your free trial today »

It's been nearly about two years since I last covered GAMCO Global Gold, Natural Resources & Income Trust (NYSE:GGN), a hugely popular closed-end fund on Seeking Alpha with over 10 thousand followers on the ticker. According to the fund's website:

GAMCO Global Gold, Natural Resources & Income Trust is a non-diversified, closed-end management investment company that seeks to provide a high level of current income. The Fund's secondary investment objective is to seek capital appreciation consistent with the Fund's strategy and its primary objective.

The Fund will attempt to achieve its objectives by investing at least 80% of its assets in equity securities of companies principally engaged in the gold industries and the natural resources industries. As part of its investment strategy, the Fund intends to earn income through an option strategy of writing (selling) covered call options on equity securities in its portfolio.

The fund uses 12% leverage (via 5.00% Series B Cumulative Preferred Shares) and charges a baseline expense ratio of 1.29%. The fund's market capitalization is $587 million and the average trading volume is 536K shares.

Currently, the portfolio is about evenly split between the metals & mining sector (44.9%) and the energy & energy services sector (42.8%). The remainder of the fund is invested in treasury bills.

(Source: GGN Factsheet, 9/30/2018)

The top 10 holdings of GGN are shown below and include well-known supermajors such as Exxon Mobil (XOM), Royal Dutch Shell (RDS.A) (RDS.B), Chevron (CVX) and Total (TOT) as top holdings.

(Source: GGN Factsheet, 9/30/2018)

In our last article, I made the point that GGN's 11% yield was of the destructive variety simply because the NAV of the fund could not be supported. I wrote at the time that the managers were not guiltless of maintaining an "unsustainably high distribution policy that will

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.

Please note: This article was first released to members of CEF/ETF Income Laboratory 3 weeks ago, so data may be out of date. Please check latest data before making investment decisions.