I certainly did not expect Donald Trump to become the 45th President of the United States, but when it comes to picking equity CEFs, my crystal ball has been much clearer.
So, let's go back roughly 2 1/2 years since Donald Trump took office in early 2017 and see which equity CEFs have performed the best. The following table sorts all of the 100 or so equity CEFs I follow, i.e. the vast majority of the largest and most popular funds, by their total return NAV performance, which takes into account all distributions added back, but not on a reinvested basis. The performances shown are from December 31, 2016 - June 7, 2019.
I will get into total return market price next, but if you have followed my articles over the years, you know that I place much greater emphasis on NAV returns since that is the apples-to-apples comparison with each fund's benchmarks. Market price returns usually follow NAV returns but, as we'll see, not all of the time since market prices can be influenced by investors who are more emotional about their choices to buy or sell.
I can only show about one-third of the funds I follow in a screenshot, so here are the top funds in descending order. Green means that the funds outperformed the S&P 500 (SPY), which was up 33.6% over the same period, including over $11 per share in dividends.
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Now, let's sort the table by total return market price performance since, here, we'll see quite a bit more funds beating the S&P 500.
So, what can we make of these tables? Well, growth technology has been the big winner, and it's probably not a big surprise that my Top Aggressive Picks for 2019 and 2017 were the Liberty All-Star Growth Fund (ASG), $5.74 current market price and the BlackRock Science and Technology Fund (BST), $32.28 current market price, the two NAV performance leaders.
In 2018, I picked the Royce Value Trust (RVT), $13.53 current market price as my top aggressive pick though surprisingly, the iShares Russell 2000 ETF (IWM) is up only 15% over the past 2 1/2 years. Though RVT has performed better, up 22% at total return market price, who would have guessed that the small cap sector, which is predominantly companies which are based and do business in the US, would have performed so ordinarily under an "America First" policy.
What other surprises were there? I think most CEF investors would be surprised to see the two Cornerstone funds, the Cornerstone Total Return Fund (CRF), $11.66 current market price and the Cornerstone Strategic Value Fund (CLM), $12.02 current market price, so high up on the NAV performance leaders table even while their total return market prices have lagged so badly over the last few years.
This is one reason why I turned short-term positive on CRF and CLM after being long-term negative for many years.
Another surprise among the NAV leaders? How about the Lazard Global Total Return & Income Fund (LGI), $15.59 current market price? LGI is a global equity fund that includes emerging market debt and currencies. How incredible has this fund been both at NAV and market price considering where it invests?
This is one reason why I include LGI in my Model Portfolio and included the Lazard World Dividend & Income Fund (LOR), $9.63 current market price, in my Top Picks for 2019 since LOR will be merging into LGI later this year (subject to shareholder approval).
Lagging Equity CEFs Under President Trump
Though again, I wouldn't necessarily equate President Trump's policies to having a direct impact on equity CEF performances, I think it's safe to say that certain positions, such as on tariffs, are definitely having an effect on the performances of many global and international CEFs.
One could also argue that his domestic energy policies are having a mostly negative effect on the energy and MLP sectors as a glut of energy has resulted from his regulatory easing and expansion policies. Combined with a global economic slowdown due mostly to trade policies, oil prices are now at roughly 2019 lows.
But, by and large, the performance of equity CEFs over the long term has much more to do with a fund's valuation, and if the fund can cover its distribution and grow its NAV. That is what I look for, and no presidential policy will have an impact on a fund that is accomplishing that.
One way to measure that performance is by the difference in NAV vs. MKT price performances and woe to a fund that is both overvalued and also seeing its NAV erode due to too high of a distribution.
So, it should not be surprising that some of the worst NAV/MKT performance differences over the past 2 1/2 years are from funds that I identified as being both overvalued AND seeing severe NAV erosion due to NAV distributions the funds could not cover.
They included the John Hancock Tax-Advantaged Global Shareholder Yield Fund (HTY), $6.94 current market price, the PIMCO Global StocksPLUS&Income Fund (PGP), $12.20 current market price, and even the Cornerstone funds CLM and CRF, before I turned more positive on them.
I had also written negative articles on the Voya International High Dividend Equity Income Fund (IID), $5.68 current market price, as well as the two Eaton Vance option CEFs, the Eaton Vance Tax-Managed Buy-Write Opportunities Fund (ETV), $14.36 current market price and the Eaton Vance Tax-Managed Buy-Write Income Fund (ETB), $15.28 current market price, as being the only Eaton Vance option CEFs I would not buy.
All of these funds have seen relatively poor market price performances over the past 2 1/2 years, though that had nothing to do with President Trump or any other President before him actually. The reason why these funds have done poorly is because investors were more enamored with uber-high yields and name recognition rather than NAV performance and reasonable NAV distribution levels.
Finally, I would like to turn the NAV/MKT performance difference table upside down so that you can see which funds have seen their market prices outperform their NAVs the most during President Trump's tenure so far. Funds in green have seen their market prices outperform their NAVs by 10% or more.
Here, you can see some pretty forgiving market price performances such as from the Voya Natural Resources Equity Income Fund (IRR), $4.64 current market price or the GAMCO Global Gold Natural Resources & Income Trust Fund (GGN), $4.47 current market price. Both of these funds have had horrible NAV performances (like most commodity and natural resources funds), but that doesn't mean they couldn't find buyers who at least could make their market price performances seem more reasonable. That's what uber-high yields can do since who isn't willing to take a gamble on a fund that offers high market yields, currently over 13% for both? Unfortunately, neither of these funds has paid off very well over the years even with those ultra-high yields.
But what I am just blown away by is who has decided that the Delaware Investments Dividend & Income Fund (DDF), $13.92 current market price should lead all funds with a 62.4% market price total return despite a rather disappointing 16.2% NAV total return?
I've brought up DDF a few times over the past year, and no fund currently represents the insanity that equity CEFs can sometimes reflect better than this fund. Doubling the fund's distribution a year ago has certainly helped DDF's market price performance (despite hurting its NAV performance), but it's the fund's extremely small size, around $83 million in net assets, which has allowed some large shareholders to control the fund's market price upwards, it seems.
I've watched many times when DDF's market price is down significantly all day (DDF has the widest bid/ask spread of any equity CEF currently) to magically rise in the last half hour of trading and then get marked up even higher after the market closes. Is it Trump's policies at work? I wouldn't think so, but it sure is suspicious! Note: I'm just kidding about that one.
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Disclosure: I am/we are long ASG, LGI, CLM, CRF, LOR, IWM. 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.