Weekly Closed-End Fund Roundup: GUT Rights Offering Results (April 24, 2022)

May 04, 2022 2:58 AM ETGabelli Utility Trust (GUT)ASG, BFZ, BKN, CEE, CLM, CRF, EVT, GRF, GRX, HEQ, MCN, MUA, NHS, NOM, NPFD, PAXS, PCQ, PYN, RCG, XFLT11 Comments5 Likes

Summary

  • 1 out of 22 CEF sectors positive on price and 1 out of 22 sectors positive on NAV last week.
  • GUT has completed its rights offering, which was oversubscribed.
  • Sidestepping the offering was once again the optimal strategy.
  • I do much more than just articles at CEF/ETF Income Laboratory: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

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Author’s note: This article was released to CEF/ETF Income Laboratory members on April 27, 2022. Please check latest data before investing.

The Weekly Closed-End Fund Roundup will be put out at the start of each week to summarize 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. Data is taken from the close of Friday, April 22nd, 2022.

Weekly performance roundup

1 out of 23 sectors were positive on price (unchanged from last week) and the average price return was -1.60% (down from -1.47% last week). The lead gainer was real estate (+0.48%) while Asia Equity lagged (-3.66%).

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1 out of 23 sectors were positive on NAV (down from 2 last week), while the average NAV return was -1.76% (down from -0.71% last week). The top sector by NAV was real estate (+0.12%) while the weakest sector by NAV was Asia Equity (-3.89%).

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The sector with the highest premium was commodities (-1.02%), while the sector with the widest discount is MLPs (-15.32%). The average sector discount is -5.29% (up from -5.59% last week).

The sector with the highest premium/discount increase was California Munis (+1.66%), while taxable munis (-0.75%) showed the lowest premium/discount decline. The average change in premium/discount was +0.32% (up from -0.60% last week).

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The sector with the highest average 1-year z-score is commodities (+0.86), while the sector with the lowest average 1-year z-score is New York Munis (-1.64). The average z-score is -0.75 (up from -0.96 last week).

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The sectors with the highest yields are limited duration (10.31%), Asia equity (9.72%), and emerging market income (9.69%). Discounts are included for comparison. The average sector yield is +7.48% (up from +7.34% last week).

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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.

Fund Ticker P/D decrease Yield P/D z-score Price change NAV change
The Central and Eastern Europe Fund (CEE) -28.85% 9.59% 28.09% 2.1 -20.73% -2.88%
Cornerstone Strategic Value (CLM) -9.85% 19.67% 29.46% -0.1 -10.03% -3.18%
Neuberger Berman High Yield Strategies (NHS) -9.75% 10.70% -4.96% -1.9 -10.65% -1.48%
Cornerstone Total Return Fund (CRF) -7.68% 19.82% 28.36% -0.3 -8.77% -3.31%
XAI Octagon FR & Alt Income Term Trust (XFLT) -6.90% 10.77% 1.88% -2.6 -3.44% 3.10%
PIMCO Access Income (PAXS) -4.82% 7.98% -8.02% 0.0 -5.39% -0.42%
Gabelli Healthcare & Wellness Rx Trust (GRX) -4.80% 4.83% -15.33% -3.6 -5.11% 0.27%
Nuveen MO Quality Muni Inc (NOM) -4.65% 3.96% 2.28% -1.4 -5.74% -1.44%
Nuveen Variable Rate Pref & Inc Fund (NPFD) -4.24% 8.17% -8.53% 0.0 -5.67% -1.29%
PIMCO NY Municipal Income III (PYN) -3.98% 5.67% -1.44% -1.5 -6.48% -2.68%

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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.

Fund Ticker P/D increase Yield P/D z-score Price change NAV change
BlackRock Invest Qual Muni (BKN) 8.85% 5.60% 4.90% -0.4 6.74% -2.25%
RENN Global Entrepreneurs Fund (RCG) 8.46% % 14.71% 3.0 3.62% -2.86%
Eagle Capital Growth (GRF) 5.35% 9.55% -7.00% 1.6 9.78% 0.00%
BlackRock MuniAssets (MUA) 5.14% 4.52% -3.36% -1.2 2.81% -2.65%
JH Hedged Equity & Income Fund (HEQ) 5.02% 8.70% 3.33% 1.9 3.73% -1.30%
BlackRock CA Municipal Income (BFZ) 4.65% 4.34% -9.92% -0.4 2.41% -2.87%
Liberty All-Star Growth (ASG) 4.55% 8.10% 10.09% 1.5 -1.85% -3.45%
Eaton Vance Tax-Advantaged Dividend Inc (EVT) 4.49% 7.12% 3.40% 1.9 1.33% -3.53%
PIMCO CA Municipal Income (PCQ) 4.34% 5.08% 33.97% 0.6 -0.32% -3.54%
Madison Covered Call & Eq Strat (MCN) 4.17% 9.14% 7.21% 1.3 1.42% -2.52%

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Recent corporate actions

These are from the past month. Any new news in the past week has a bolded date:

April 20, 2022 | Gabelli Utility Trust Rights Offering Oversubscribed by $68 Million Raising $50 Million.

April 11, 2022 | BlackRock Announces Closing of Reorganizations of Three Municipal Closed-End Funds.

April 4, 2022 | Special Opportunities Fund, Inc. Announces Results of Tender Offer.

Upcoming corporate actions

These are from the past month. Any new news in the past week has a bolded date:

April 8, 2022 | Cornerstone Total Return Fund, Inc. Announces Rights Offering.

April 8, 2022 | Cornerstone Total Return Fund, Inc. Announces Rights Offering.

April 7, 2022 | NEUBERGER BERMAN HIGH YIELD STRATEGIES FUND ANNOUNCES RIGHTS OFFERING AND SUMMARY OF TERMS.

March 29, 2022 | Western Asset High Income Fund II Inc. Authorizes Rights Offering.

Recent activist or other CEF news

These are from the past month. Any new news in the past week has a bolded date:

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

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Boosters

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Commentary

1. GUT rights offering results

The only news to comment on this week is the rights offering results for The Gabelli Utility Trust (NYSE:GUT). GUT (and other Gabelli funds) uses a different formula for their rights offerings compared to most other fund families. Instead of having a subscription price based on a certain percentage of the NAV or market price of the fund, they used a fixed subscription price of $5.50 which could be combined with together with 7 rights to subscribe for 1 new share of GUT. The ex-rights date was March 9, 2022 and the offer expired on April 19, 2022.

We discussed the rights offering when it was announced in a previous CEF Weekly Roundup. Our suggestion, as usual, was to sidestep GUT over the rights offering period.

I would still recommend GUT investors to avoid holding this fund through this time period, based on history, although there are no guarantees... To reduce this market risk, one can sidestep into a similar CEF or ETF, such as the Utilities Select Sector SPDR (XLU) in this case.

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Looks like the "sell and rebuy" strategy would have worked wonderfully once again. An investor could gain +17% "free shares" of GUT by selling the fund before the ex-rights date and then buying back today. If one had rotated into the benchmark ETF, the number of free shares of GUT obtained could have exceeded +21%. As I always say, gaining free shares of GUT using the sell and rebuying strategy is better than subscribing for slightly discounted shares, am I right?

The reason that this strategy worked of course was due to a decline in the premium/discount valuation of the fund over the rights offering period. The fund traded at a near +100% premium before the ex-rights date, but this has declined to +64.22% as of yesterday's close. This still makes it overvalued both on an absolute and relative basis, so I would not recommend investors put new capital into the fund at the present time.

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The offering itself was a success for managers. The fund aimed for a raise of around $50 million, but received $118 million in subscription requests. This allowed the fund to grow its AUM and share count by the maximum proportion of 14% (one-seventh).

Because of the high premium of the fund, this rights offering was also accretive for shareholders, making it a win-win* situation all around. I estimate a NAV boost of around $0.15/share or +3.3% for shareholders. We can see that the NAV of GUT was likely adjusted on April 25, 2022, the day that the new subscription shares were issued, as the NAV jumped from $4.19 to $4.30 in one day.

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(*While the accretion is a win for shareholders long-term, investors who missed the memo on the rights offering are likely still smarting from the capital loss due to the deflating premium. This is why one needs to be aware of such corporate events in their CEFs as they occur!).

Strategy statement

Our goal at the CEF/ETF Income Laboratory is to provide consistent income with enhanced total returns. We achieve this by:

  • (1) Identifying the most profitable CEF and ETF opportunities.
  • (2) Avoiding mismanaged or overpriced funds that can sink your portfolio.
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It's the combination of these factors that has allowed our Income Generator portfolio to massively outperform our fund-of-CEFs benchmark ETF (YYY) whilst providing growing income, too (approx. 10% CAGR).

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Disclosure: I/we have a beneficial long position in the shares of CLM, CRF, XFLT either through stock ownership, options, or other derivatives. 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.

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