Equity CEF Performances: Updated Through July 29th, 2022

Summary

• In the last Equity CEF Performance update, I called the prior week a "good" week. This week, I will upgrade that to a "VERY good" week, particularly for leveraged CEFs.
• With the S&P 500 gaining +4.3% on the week and the NASDAQ-100 +4.5%, those strong moves actually paled in comparison to some equity CEFs.
• How about Buy rated funds like ETO, up +15.2% for the week, or ETG up +8.3%. Heck even some technology focused CEFs like BST were up +6.4% for the week.
• Generally speaking, though, leveraged equity CEFs tended to outperform, particularly among energy & infrastructure names like NRGX up +7.0% and MGU up +5.5% for the week.
• The more defensive option-income funds lagged a bit, but overall, it was a very good week for all CEFs, even bond CEFs. Does this mean we are seeing a new bull market?  Well, not so fast.
• Looking for a helping hand in the market? Members of CEFs: Income + Opportunity get exclusive ideas and guidance to navigate any climate. Learn More »

Kameleon007

** As I've done for the past several months, I am making my last of the month SUBSCRIBER ONLY Equity CEF Performance update from July 29th available to the general Seeking Alpha audience.

I think you'll find my general market and fund recommendations to subscribers have been right-on-the-money and I would encourage you to review CEFs: Income + Opportunity and see if my services might be able to help you navigate the current market environment. Sign up for a free trial **

Below is your YTD Equity CEF Performance spreadsheet link updated through July 29th, 2022:

2022CEFPerformance.7.29.2022.xlsx

Though equity closed-end funds ("CEFs") and even bond CEFs like, say, the Nuveen Municipal Credit Income fund (NZF), $13.47 current market price, seem to be breaking out to the upside, there are still some bearish signs out there.

For every large cap tech name like Microsoft (MSFT), $280.74 current market price, up 7.8% for the week, there were 10 smaller names like Roku (ROKU), $65.52 current market price, that went the opposite direction, with ROKU down -26.2%. Roku may have been an outlier in terms of percentage loss, but on Friday alone, a subscriber pointed out that there were 344 new 52-week lows on the NYSE composite while only 18 new highs.

That's not a healthy market if we are, once again, seeing a narrow number of big cap stocks driving the indices higher while giving the impression that everything is OK and a new bull market has been born.

So with both the S&P 500 (SPY), $411.99 current market price, and the NASDAQ-100 (QQQ), $315.46 current market price, having bounced roughly 10% off their lows from June 16th when SPY was down about -22% at its worst YTD and QQQ was down over -30%, it was probably not unexpected to see a bounce. But are we now due for some resistance at these levels?

YTD Total Return MKT for SPY and QQQ:

Y-Charts

Just based on resistance levels (see above), I think so. Considering the headline news this past week regarding earnings, GDP and the Federal Reserve meetings, the most positive takeaway was theoretically from the Fed and Jerome Powell hinting that they may be more dovish going forward.

But that may not be the case, especially if we see oil and energy prices moving back up. Already, oil is approaching $100/barrel again. The concern is that inflation will be sticky and be with us longer than expected, and with the Fed intent on bringing inflation down to their target 2%, the markets may not like what they hear out of the Fed going forward after all.

I wouldn't necessarily take that as a reason to sell aggressively, but I have in recent days added back to hedges such as the ProShares UltraShort -2X S&P 500 (SDS) at $41.90 current market price. I have also added to the ProShares UltraShort -2X Russell 2000 (TWM), $15.70 current market price.

Again, you have to think of hedges as insurance policies just in case we get an abrupt turnaround. Because betting on a new bull market being born at these levels seems pre-mature with many of the same problems that started the bear market in the first place, continuing to pose problems.

Maybe the worst of the markets has already been absorbed and there will be buyers now who will step in to limit any significant downside, but the flood of buyers last week had the feel of many investors who were either under-invested and/or highly hedged going into this week's news and thus, were scrambling to get more exposure or cover hedges once the upswing was confirmed.

And if that's the case, much of the firepower has probably been already used up.

Equity CEFs

The fact that most equity CEFs, both leveraged and option-income, tend to include mostly large-cap stocks in their portfolios, unless they specifically focus on smaller stocks like from the Royce family of funds, meant that most CEFs also enjoyed a very good week last week as well.

And my emphasis on energy, utility and infrastructure CEFs like (SRV), (NRGX), (BGR), (MFD), (MGU) over the past few weeks after an oil/energy sell-off, has also helped portfolio performance significantly. Just go to Sheet1 or Sheet2 of the Equity CEF Performance link above to see how well these funds have performed this year.

The biggest question for me is whether or not the large cap technology strength in Microsoft, Amazon (AMZN), Apple (AAPL), Alphabet (GOOG, GOOGL), etc. will broaden out to the more risk-on and higher P/E technology names. Unfortunately, I think that's also premature, and most of these smaller-cap technology stocks that have seen -50% or more losses this year (and there are a lot of them) will continue to be faced with tax-loss selling throughout the year, thus limiting any strong recovery.

The other question I have is if international markets will be able to follow the U.S. markets to some resemblance of a recovery? That may also be wishful thinking as many analysts believe the worst is still yet to come for European economies due to the Russia/Ukraine conflict and the lack of energy and gas supplies they face for the upcoming winter. And if that's the case, along with a more desperate Russia, that may also be a catalyst for a U.S. market pullback.

But in the meantime, let's enjoy the bounce we have seen in the markets and hope it continues into August. But be prepared to hear from the nay-sayers who will say how July, up an impressive 9.2% for the S&P 500, was just a bounce in an overall bear market and we will be headed back down soon enough.

I don't know about that since they have been calling for the S&P 500 to hit anywhere between 3300 to 3500 before it's all over. But with June's low of roughly 3650 or $365 on SPY, I don't see that happening. But just the same, be prepared for a reality check whether it comes from the Fed or somewhere else since I do think that is still to come.

I hope all of you had a wonderful summer and as for me, vacation is now over and I will be back in the office come Monday.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ETO, ETG, NRGX, SRV, BGR, BST, MGU, MFD, SPY, QQQ, SDS, TEM, NZF 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.

Comments

[labard]

Do you still like AIO?
Thanks

[Douglas Albo]

@labard I do. The fund is much more diversified than just technology and considering the fund got started with a $20 NAV in October of 2019, before the pandemic and before the technology wipeout, that's very impressive when you plug back all the distributions and capital gain distributions of $3.45 in 2021 and $1.16 in 2020.

[labard]

@Douglas Albo Thank you for your reply. Appreciate your articles and comments.

[Douglas Albo]

@labard Oh, and I meant to say that AIO's current NAV is $20.63 even after all of those distributions and capital gains. Still well over its $20 NAV initiation price.

[bobofran3726]

ETO is one of my larger positions and as a retiree, the monthly income from it is great. I've never sold any, I hate making Uncle Sam a partner and if I have spare powder, I add on the pull backs.

Always look forward to your informative articles. Thanks

[TimNeuman]

What do you make of the astounding pricing of ETO with it now trading at a 15.57% premium? That seems ridiculously unsustainable.

[Douglas Albo]

@TimNeuman As I said to my subscribers yesterday when I suggested to sell some shares, this is not the first time I've seen ETO make this kind of a move. ETO is a relatively small fund for Eaton Vance and is prone to spikes up and down. But yes, yesterday was a good opportunity to sell some shares.

[morl333]

Why would you not mention CLM and you are not long on the best CEF there is?

[Douglas Albo]

@morl333 I have very large positions in both CLM & CRF and the funds have been doing exactly what I said they would do. But that was 6-weeks ago and there really hasn't been a reason to write on them recently other than maybe gloating on their performance I guess.

[RD1300]

@morl333 I don't see anything to like about CLM. The NAV has been in a steady decline since 2004.

[Douglas Albo]

@RD1300 You can't apply normal fund valuations or analysis with the Cornerstone funds. They are completely unique. They 'offer' 21% annual NAV distributions that you can re-invest at NAV, even if the MKT price goes to a 50% premium, like it did earlier this year. The strategy then is to sell around high premiums, usually ahead of a Rights Offering and buy back after the Rights Offering when the valuation falls. Just remember to reinvest those large distributions, otherwise the strategy doesn't work.