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USA: Another High Yielding Equity Fund

May 02, 2021 5:47 AM ETLiberty All-Star Equity (USA)ADBE, CRM, GE127 Comments


  • USA takes a different approach by investing through five different sleeves through five different investment manager groups.
  • The fund has a focus on paying out 10% annually to shareholders based on 2.5% quarterly.
  • Over the entire life of this fund, it has declined in price only since inception - though that masks some significant total returns due to distributions.
  • This fund isn't for everyone; in fact, it is quite overvalued at the moment and should be put on the watchlist.
  • This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Learn More »

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Photo by matdesign24/iStock via Getty Images

Written by Nick Ackerman, co-produced by Stanford Chemist

The Liberty All-Star Equity Fund (NYSE:USA) has historically been able to put up some great performance. The main attraction is the distribution policy of 10% annually

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This article was written by

Nick Ackerman profile picture

Nick Ackerman is a former financial advisor using his experience to provide coverage on closed-end funds and exchange-traded funds. Nick has previously held Series 7 and Series 66 licenses and has been investing personally for over 14 years.

He contributes to the investing group Learn more.

Analyst’s Disclosure: I am/we are long HON. 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.

This article was originally published to members of the CEF/ETF Income Laboratory on April 15th, 2021.

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 (127)

N-2 filed September 27 2021.
Nick Ackerman profile picture
@integritycoatings they announced the RO terms, just no date yet. Maybe that's a filing that means their closer to starting it. www.google.com/...
7865671 profile picture
@Nick Ackerman So the RO dates have been set. www.all-starfunds.com/...

If the current 12+% premium to NAV holds, the subscription pricing would be at least 17% below the market price. I'm trying to wrap my head around this market inefficiency. Perhaps one should expect the premium to collapse as the expiration date of 11/22 nears?

"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."
Nick Ackerman profile picture
@7865671 whichever is lower so they don't even want to try to make it accretive? This is why shareholders feel shafted...at least if it was the higher of either it could be accretive. They know the premium will collapse though. This one is different, however, because HDO is still saying buy. They have enough sway to push prices. Still, since it is guaranteed below NAV, it is guaranteed dilution.
robkrow profile picture
Any theories on the pop in USA today? At this moment up 4.6%.
ButscherDoug profile picture
@robkrow You're not going to like the answer.
Nick Ackerman profile picture
@robkrow not sure! I haven't seen any news. The last I knew they were doing a rights offering and that should put pressure on the fund. However, I suspect it could have something to do with HDO...I don't have access to confirm, but buying into before an RO is an interesting approach..
Eileen Dover profile picture
@Nick Ackerman I thought with RO the price would go down for a short time. I am still banking on it !!
robkrow profile picture
What is the best approach to the USA rights offering? Any suggestions? Thanks.
Nick Ackerman profile picture
@robkrow historically, selling the fund and investing elsewhere to sidestep the rights offering has been the best bet. Though history doesn't always repeat itself. GAB or ASG, I believe, could be considered to sidestep this deal.
robkrow profile picture
@Nick Ackerman
Nick, thank you very much. I truly appreciate that. Likely will do just that. I fact while I own some USA, I had cut back recently and switched to ASG. Will likely sell remainder of my USA. Thanks, again.
Nick Ackerman profile picture
@robkrow here is some more in-depth reading if you have the time for it on two recent deals. The first is an example with THW. seekingalpha.com/...

The second one here is for BST. seekingalpha.com/...

Good luck!
Rights Offering announced this morning. No settlement date yet.
Eileen Dover profile picture
@Nick Ackerman The Rights Offering did not affect the price today. Shouldn't it go down so we can buy more USA during this time? Thanks
Nick Ackerman profile picture
@Eileen Dover I believe it will have further to fall, yes. That is what we've observed in the past. Today being a mostly up day for the market could have helped it too.
Another fine article Nick. I really like the concept of five managers working different segments...like ASG this appears to be a winning strategy. USA is my third largest CEF position and I’m totally happy that being in it only since August of 2020, I’m presently up 34% including dividends because I drip. I typically buy the down spikes hard and sell positive lots post ex div and produce additional revenue. This is a great CEF for actively trading lots.
Nick Ackerman profile picture
@Capt.TonyWild thank you for reading! Glad you are having success as well!
Eileen Dover profile picture
Up to 9.18 today, premium to nav now 13%. Any reason not to keep holding? Thank you
Nick Ackerman profile picture
@Eileen Dover I don't see a reason to. Though we all know that premiums can be quite persistent or even head higher!
@Nick Ackerman don't see a reason to hold or 'not hold' as @Eileen Dover asked ?
Nick Ackerman profile picture
@gutcheck they already answered the question and I was agreeing. The premium is enough to sell and revisit in the future. Though if you are content with the current valuation, then feel free to continue to hold. I just personally wouldn't.
lshiang profile picture
I have not been paying attention to CEF for quite some time due to its low percentage in my portfolio. The $USA appears to be one exceptions, which beat SP500 in total return for years.
robkrow profile picture
Why is USA up 3% today?
Nick Ackerman profile picture
@robkrow good catch! Looks like it was all of a sudden intra day as well!
elliot_mllr profile picture
It's now down 7 cents.
Elliot Miller
robkrow profile picture
@Nick Ackerman
And up 2.5% today. Any thoughts? Thanks.
I purchased a fairly large (by my standards) position in February after a lot of research while it was still at a discount. I am up about 20% in three months (not bragging, just lucky timing). I have since taking profits twice including today. Premium today is around 7%. I consider this fund to be one of the better manged funds with an excellent distribution yield. I like the diversification with five managers. I would consider buying more when USA is selling at a discount again.
Nick Ackerman profile picture
@almal46 that's great to hear! Thank you for sharing.
@Nick Ackerman - just saw where ASG is doing yet another rights offering. These are beginning to get so tiresome to deal with again and again
Nick Ackerman profile picture
@clrodrick indeed! It has to do with the combination of the overall high valuation of everything and the historically narrow discounts across the board. If any time is the best time for an RO, it is when the market is nice and high, with valuations really tight to reduce dilution. Though agreed, it can be disruptive and hard to keep up with so many.
how much price/nav discount is a good buy ?
Nick Ackerman profile picture
@gutcheck for USA I'd like to see a 5%+ discount.
sts66 profile picture
Good article, but I still have a couple hundred comments from Left Banker's last two QYLD articles rattling around my head that the since inception drop in NAV is showing that the fund is eating itself, and you could have done better buy buying QQQ instead - TR of USA vs SPY isn't nearly as dramatic as it is to the QYLD/QQQ difference, but it's still there. Since I opened my rollover IRA I've focused on building wealth slow and steady mostly via DRIPing divs, but it turns out that was a really bad idea - I could have put it all in SPY or QQQ and I'd have a couple million now with zero decisions and headaches to deal with - cap gains was definitely the way to go if you're trying to build up your nest egg, at least since 2009. This realization makes me wonder whether I should change my investing methods now while I still have time - but the nagging "market can't go up forever" thoughts still remain, despite the fact that I've seen it happen almost uninterrupted for 12 yrs now!
Nick Ackerman profile picture
@sts66 QYLD isn't designed to outperform QQQ. As it utilizes call writing against the index, it just won't happen. What it does do a great job of, is paying out a monthly distribution that is attractive for income-focused investors. If you are looking to optimize just total gains, putting your money in SPY or QQQ would do a fine job - as you imply. Good luck with whatever you decide to do!
@sts66 ". . . since inception drop in NAV is showing that the fund is eating itself, and you could have done better buy buying QQQ instead . . ."

Since inception not a good measure. Recent is more relevant. USA NAV plus 233% since Feb 2009; not too shabby. However QQQ up 259% same period.
Nick Ackerman profile picture
@G.Ray thank you and agreed. Though USA is even further away from being invested to QQQ, so not a great comparison either - in my opinion, of course.
Good data and COMMENTARY.
Pinot44 profile picture
Quarterly payer with a high dividend? This seems more like gambling. I admit the results are impressive. I love to come in and steal dividends but...
Nick Ackerman profile picture
@Pinot44 yes, track record is quite appealing! Meaning that has helped them cover their distribution and increase it in an upward trend since 2008.
NV_GARY profile picture
@Nick Ackerman
RE: your comment on wondering about HON-- news is out that they are switching to the Nas from NYSE- seeing themselves as the world leader in
'software industrials' ... ok.
Nick Ackerman profile picture
@NV_GARY interesting move. Positioning themselves for the way they've been pushing for a bit. Ive been long HON for a while. Switching the exchange doesn't really seem to make sense, but thank you for sharing!
garkster profile picture
@Nick Ackerman Yeah, it's like changing the paint color on your storefront. Might save them a few shekels depending on what the Naz is offering for companies to switch their listing.
Investors get caught of with the 10% steady periodic yields on CEF. Mutual funds are ideal to set up the same withdrawl and you save at least 1% mgt. fee, which is a huge boost to Total Return. Vanguard has conservative managed funds or index ones that beat USA by huge margins. I pulled up a graph of last five years for comparison and it was difficult to find a Vanguard Fund that didnt beat USA by a long shot-many over 5% a year. I think investors get caught up trying to work an angle on the discount/premium, which is tricky at best to monetize.
Nick Ackerman profile picture
@derek123 thank you for sharing your thoughts here!
Great fund but overpriced. I’ve owned in the past and it’s on my watch list but at these prices and with the fund holding a healthy amount of tech, I’m not a buyer here.

The fed says inflation is picking up but is transitory. I’m not buying it. It almost seems like they’re trying to talk themselves and the market into believing it. After all, the treasury can’t afford higher interest rates. The debt service needs would explode. The market would decline. Tech would absolutely decline.

I like the fund but not here.
Nick Ackerman profile picture
@movetohawaii indeed! I think you bring up some great points. Thank you for sharing!
sts66 profile picture
@movetohawaii Nothing transitory about inflation - it's here.
Comparing CEF prices based on current NAV vs Historical NAV is difficult due to the Covid, Recovery and Election effects distorting the reported 12 Month NAV Averages. I use January 17, 2020 as a comparison as that was a market high just before the storm. The comparison shows some speculation in several, a couple of possible 'buys' and time to consider taking a profit in some others. Here is a link to my Google Drive file. docs.google.com/...
Nick Ackerman profile picture
@Rellif thank you for the input and sharing!
NV_GARY profile picture
@nick ackerman
" Over the entire life of this fund, it has declined in price only since inception ...."
huh? Clarify.
Nick Ackerman profile picture
@NV_GARY sorry about that. What I meant there was on a price basis only there has been declines. When factoring in the distributions, you would be positive since inception.
Does this offer a 5% discount on DRIP shares like ECC and OXLC?
Nick Ackerman profile picture
@Kajoobies88 yes, that is the case - at NAV or a 5% discount. Depending on the level of the premium.
garkster profile picture
I first looked at the fund about 9 months ago and was intrigued, but found there was potentially too much overlap with other actively-managed, and cheaper, funds that I already held, but do think the approach merits consideration.
Two points about your excellent article.
"This is due to the inception date of that ETF being January 22nd, 1993." No quarrel with that, but if you ever do need more history, you should be able to get it back to 1976 in the open-end Vanguard SP500 fund VFINX. I don't think they are selling it anymore so only the Admiral is available with the same minimum and also an ETF, but I believe they are still pricing it.

Regarding GE, a number of value managers are apparently betting on a turnaround, e.g. Fidelity, Capital Group and T. Rowe Price have significant positions, and Morningstar is showing an almost 8% position in a Pzena fund that I'm not familiar with.
Nick Ackerman profile picture
@garkster thank you for this helpful input! Always appreciate your thoughts.
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