最小的封闭式基金之一也是一个很好的购买

ECF has a large discount and impressive track record of total returns and income growth.

Its small size and management team indicate the fund may be terminated soon, providing investors with upside.

ECF is a superior purchase to GCV or many other funds with a similar mandate.

As an asset class and an option for retirees, CEFs have lost favor for many years in the age of the ETF. This is both unfortunate and an opportunity. It is unfortunate because many great CEFs that

exist simply do not as fund managers cook up ETF products. But it’s also fortunate because it makes the CEF asset class massively inefficient, providing opportunities for investors.

One inefficiency that exists due to the NAV/market price dynamic is the instant reward when a fund is terminated, either by being merged with another fund or by being liquidated. Some activist investors, like the City of London, have a tactical approach of buying funds at a large discount in a hope to capture that discount when the fund is liquidated.

An activist investor with a large enough portfolio can effectively make this happen. Individual investors, on the other hand, cannot, and some zombie funds can linger for many years before they are liquidated. For this reason, I almost never recommend buying a fund simply to take advantage of a looming liquidation.

However, in the case of the Ellsworth Growth and Income Fund (ECF), this strategy just might work.

ECF is a convertible and equity fund, similar to many other CEFs. Its returns have been impressive - close to the S&P 500, with a 10.4% annualized return over the last 10 years (versus 13.2% for the S&P 500).

Because of ECF’s less-risky mandate (convertible bonds are typically lower-risk than common stocks), this smaller return is to be expected. Furthermore, the fund's performance during the volatility of this year and last makes it a compelling buy on its own right.

ECF has been around since 1986, and while the fund’s ownership has moved around over the decades, its current management, Gabelli Funds, is well known on Wall Street for its prudence and responsible investing. The best feature of the fund, however, is its 8.4% discount to NAV.

That discount has shrunk since 2017 as a result of more investors discovering the temporarily underpriced CEFs at the time. While its current discount is not as appealing as in prior months, it is still sizeable when compared to many similar funds. Furthermore, it makes ECF’s 4.2% yield on NAV all the more obtainable.

While that also means its 4.6% yield on price is lower than most CEFs, ECF has proven to be a dividend grower for long-term investors.

After the last pay hike on regular dividends in 2018, it is possible that more pay hikes could come in the future. But what I think is much likelier is that the fund will shut down or merge with another Gabelli fund.

ECF currently has $147.1 in total assets under management. With a 1.2% net expense ratio, the fund earns Gabelli $1.77 million in annual revenue. While Gabelli has several other funds to offset the costs of managing ECF separately, it would make sense for it to merge ECF with the similar Gabelli Convertible & Income Securities Fund (GCV), which is of a similar size (125.1 million in net assets, $100 in common shares) and has the same management team (Thomas and James Dinsmore). GCV also has a higher expense ratio (1.9%), so Gabelli’s margin from merging these funds would be higher as well.

Since merging GCV with ECF would be a win-win for all involved, I would advocate that Gabelli make such a move. Until that happens, though, I would recommend ECF as the better fund over GCV, not just because of its lower fees but also because of its superior performance.

On a total NAV return basis, ECF has been the better performer. While changes in management and the fact that both funds are managed by the same people

mean this gap in performance would close, we have not actually seen that happen - which would suggest it is the mandate and fee structure dictating this difference.

Another reason to vote in ECF’s favor: its lower yield. GCV’s 9.3% income stream has attracted yield chasers, resulting in a smaller discount despite its relative underperformance.

Superior returns and the upside of an 8.4% capital gains on the fund’s termination are reasons to pick ECF over GCV - or indeed, many other small CEFs on the market.

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.