封闭式基金：2008年之前，这5个名字从未因Incept而削减发行量

The continued global slowdown is at the top of everybody\'s mind, and trade war is continuing to push us into uncertainty.

I wanted to highlight several funds that made it through 2008 without having to trim their distribution.

Consistency and reliability of income are of important consideration for those in retirement or approaching retirement.

We can also pull the numbers from prior reports to see if the funds are still in a position to maintain their payouts in the next recession.

CEFs are high-yielding instruments compared to their ETF counterparts. Even individual companies can't usually compete with the payouts that CEFs can produce for their investors. The global slowdown is at the top of everybody's mind. The continuing escalation of the trade war is further hampering expected global growth, as China and the U.S. can't seem to reach a deal anytime soon.

With these realities, I wanted to highlight the fact that some funds were able to maintain their distributions even through the financial crash of 2008/09. We will then try and see if they can withstand another inevitable recession. It's just the natural cycle of economics, there are peaks and troughs that we experience. I am not saying a recession is imminent, just that one will happen again, at some point.

The following funds that are presented have a tilt towards being more defensive. Two of the funds being invested heavily in utilities, two funds being multi-sector fixed-income oriented (as well as being PIMCO funds) and a fund in the healthcare sector. I chose to narrow the list to just five funds, with a special focus of making sure they have an inception date before the financial crisis of 2008/09. There may be other funds that match these criteria as well that I did not include either because I do not follow them or to make sure the length of this piece isn't onerous.

Additionally, the list is not in any particular order, meaning that the first isn't necessarily more attractive than the fifth discussed. The discussions under each fund will provide my personal feelings. However, this isn't personalized advice, and readers should decide if a certain fund is a fit in their portfolios!

And why are CEFs a great source for income? They produce outsized yields compared to other security types. They can do this for a few reasons. One of the reasons being is that they distribute out net investment income, short or long-term capital gains and even return of capital in some cases. These are all distributed out throughout the year, generally, being equal payments. This is dependent on the fund's managed distribution policy, and if they have one or not.

Another reason they can have a larger than usual payout is due to utilizing leverage. This can be done either by borrowing debt or issuing preferred shares. A couple of examples of this are Reaves Utility Income (UTG) and Gabelli Equity Trust Inc. (GAB). UTG has total net assets of $1.678 billion, as of their latest Semi-Annual Report. However, they also have borrowings of $445 million, making total managed assets at that time $2.123 billion. GAB has total common assets of $1.5 billion but issues preferred shares of approximately $400 million in value. These preferred issues are traded on an exchange just like the common shares. A couple of examples currently that they offer are Gabelli Equity Trust Inc, 5.00% Series H Cumulative Preferred Share (GAB.PH) and 5.875% Series D cumulative Preferred Shares (GAB.PD).

These borrowings or issues are then used by the management to potentially enhance returns and income. The hope is to see a return above and beyond the cost of the leverage. However, this does add additional risk to the funds. This is because during recessions these instruments tend to be a drag on performance because they cannot outearn what they are costing the fund. Additionally, NAV would be dropping faster due to the added investments that debt provided the fund.

Other strategies that a CEF can use are options strategies. These are typically carried out by writing calls. Writing calls on the underlying holdings of the fund can help generate options premium. This premium is then collected by the fund and paid out to shareholders. The option premium is generally accounted for as ROC to an investor. In the right funds, this ROC is merely for tax accounting rules and not "destructive" ROC. Destructive ROC would occur when the fund pays out too much to shareholders. The fund then ends up eroding the NAV of the fund by paying out over what the fund can sustain. Some funds write calls on indexes such as the S&P 500 or NASDAQ. Some of the more popular funds in this category are from Eaton Vance (EV). These include Eaton Vance Tax-Managed Buy-Write Opportunities Fund (ETV) and Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund (ETW).

This is a fund I've covered several times in the past and believe is a solid fund. BME offers investors exposure to the healthcare sector. The healthcare sector is under increased scrutiny from the U.S. government on the basis of overcharging for drugs and healthcare services. Especially, the costs compared to the rest of the world. Keeping this in mind, the sector may experience continued volatility even when healthcare is generally considered a defensive sector.

BME has an investment objective to "provide total return through a combination of current income, current gains and long-term capital appreciation." They intend to achieve the stated objectives through "investing at least 80% of its assets in equity securities of companies engaged in the health sciences and related industries and equity derivatives with exposure to the health sciences industry. The Trust utilizes an options writing strategy to enhance dividend yield."

Through the use of an options writing strategy, the fund can sell covered calls on the underlying holdings and receive a premium. Currently, BME is overwritten on 30.54% of its holdings, using single stock covered calls. This is another slightly defensive attribute of the fund. Covered calls provide a premium for the fund on the options contract and help provide slight downside protection.

As we can see, BME did have to pay out an amount of return of capital [ROC] in 2009 to maintain the distribution. However, in 2010, the fund was back to covering its distribution through capital gains and about 25% net investment income.

One thing to note is that the considerable variance between the total payments to shareholders through those years is due to the fund's special distributions.

BME primarily funds its distribution through capital appreciation. In 2017, the fund paid out a total of $21,616,116 in distributions. This was classified as $806,387 NII, $18,575,419 in capital gains and $2,234,310 in ROC. This was even when the fund had a positive total return on NAV for the year. NAV went from $35.70 on January 1st to $35.87 on December 31st. Meaning that the distribution for 2018 was not actually destructive ROC.

For 2018, the fund paid out $22,690,477 in total distributions to shareholders. This was composed of $692,439 in NII and $21,998,038 long-term capital gains.

It appears obvious that BME relies heavily on capital gains to maintain its distribution. And looking at the fund's latest Annual Report a bit deeper, we can find that the fund currently has $100,865,783 in unrealized appreciation at the end of 2018. This has since increased in 2019, as their total managed assets stood at $355,485,481 in that report, now at slightly over $400 million.

The fund had $41,280,460 in unrealized appreciation in their October 31, 2007, Annual Report, which is the year before the financial crisis really took off. The fund has considerably more "built-in" unrealized gains at this time (more than double). In their 2008 report, the fund had unrealized

depreciation

of $7,177,147.

Overall, I believe it is fair to say that BME's distribution is quite safe, even in the next recession. Preferably would be safer if the next recession is a more mild one than the financial crisis of 2008/09. And, I would be expecting the next recession to not be that severe anyway, personally.

UTG is one of the more popular funds, the fund has been able to raise its distribution 11 times since inception. This is quite a feat for a CEF considering their distributions are abnormally high!

UTG has an investment objective of "a high level of after-tax total return consisting primarily of tax-advantaged dividend income and capital appreciation." The fund invests "at least 80% of its total assets in dividend-paying common and preferred stocks and debt instruments of companies within the utility industry. Up to 20% of the fund may be invested in the securities of other industries."

Being that the fund invests a large portion of their assets in utility companies (and utility like companies, i.e. Verizon Communications Inc. (VZ), they are quite defensive. Utilities provide strong cash flows by providing electricity and gas services to individuals and businesses. These are not likely to be impacted by economic factors, as people tend to still pay for these services no matter what.

UTG did not have to resort to paying out any destructive ROC through the financial crisis. They actually had plenty of NII to continue paying out their distribution, without relying too much on capital gains. This can be viewed as a positive and a negative. The negative being that NII would be taxed as ordinary income, which is a higher tax rate compared to capital gains taxes.

Again, the variance in yearly total payout to investors is due to special distributions.

For 2018, the fund paid out $96,853,302 to investors. With a much larger reliance on capital gains, accounting for $56,526,406 of the distribution. The remainder of the balance was classified as ordinary income in the amount of $40,326,896. Again, this can be viewed as a positive and a negative. The positive being the lower tax classification. Conversely, the greater reliance on capital gains may make some investors nervous as to sustainability.

In their Semi-Annual Report, ending April 30, 2019, we can see that they have approximately $505 million in unrealized gains. This provides investors with a significant buffer to withstand a fairly decent recession if we experience one. The fund managers also just increased the distribution relatively recently, signaling their confidence. For those reasons, I would say UTG's distribution is in the safe zone, come what may.

This is another pretty popular fund for investors, not one that I had previously covered, however. This is another utility fund, so the same applies to what was said about UTG. That is, the underlying assets have recession-resistant cash flows.

DNP has an investment objective of "current income and long-term growth of income. Capital appreciation is a secondary objective." The fund will "invest primarily in a diversified portfolio of equity and fixed income securities of companies in the public utilities industry. The fund's investment strategies have been developed to take advantage of the income and growth characteristics, and historical performances of securities of companies in the public utilities industry."

DNP did have to rely on some destructive ROC to get through the financial crisis, although it doesn't appear to have been significant enough to harm the fund long term. It also didn't lead to the fund adjusting the distribution.

This is quite the consistent fund, paying out $0.065 for over 20 years now. Not many funds can say that! However, keep in mind the fund trades at a significant premium and almost always does.

For 2018, the fund paid out total distributions of $225,842,456. This was composed of $80,941,350 ordinary income, $107,273,507 capital gains and $37,627,599 ROC. The fund had an NAV per share of $9.68 January 1st, 2018, and ended the year with an $8.75 NAV per share. Meaning that the fund did have destructive ROC for the year, technically. However, the fund does have a net unrealized appreciation of $719,259,455. Because of this, the ROC was only due to the fund not selling positions to realize the underlying gains.

So, this could spark quite the debate. The distribution could have been funded by these unrealized gains but the fund manager decided they were better off holding those positions. Therefore, the classification of the distribution was ROC. Additionally, the NAV per declined in 2018. This is why I've said in the past that it depends on certain circumstances before considering if the distribution is truly ROC. Technically, it is because the NAV decreased for that period of time, but wouldn't have been classified as such if they would have sold - realizing the unrealized gains in the portfolio.

With all of that said, DNP has survived more difficult environments than the other names on this list. I would say the manager's commitment to $0.065 monthly is quite safe. Even sustainable when looking at the fund's significant cushion of unrealized gains.

Now, we get to the two PIMCO funds to finish off the shortlist. PIMCO is a very popular fund family, especially on SA as a whole. PIMCO is viewed as the quasi experts in fixed income. It really isn't a surprise that they have two funds to make this list. PCN was formerly known as PIMCO Corporate Income Fund, before changing its name February 1, 2012.

PCN is held in our Income Generator portfolio at CEF/ETF Income Laboratory as well. Currently, it is rated a "Hold" but has exceeded our "sell above" premium level. This means that we are waiting for a suitable replacement for the fund to swap to.

The fund has an investment strategy of "seeking high current income, with a secondary objective of capital preservation and appreciation." They will attempt to achieve the stated objective by "investing at least 80% of its total assets in a combination of corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers, such as U.S. government securities, municipal securities, and mortgage-backed and other asset-backed securities issued on a public or private basis. The fund will typically invest at least 25% of its total assets in corporate debt obligations and other corporate income-producing securities."

Basically, the short version is anything fixed-income - then this fund can invest in it. Which has unique features of providing steady cash flow through interest payments on the underlying debts, bonds and loans. Somewhat similar to utility companies but even more secure. This is because of debts and bonds being senior to common stock, even more, senior to preferred securities too, although, like any investment, it is not 100% guaranteed.

This is exactly what we should see for a fixed income fund, almost 100% attributed as ordinary income. That is because the underlying assets aren't generally designed for capital appreciation.

PCN started with a payout of $0.1063 and is currently paying out $0.1125, not impressive growth but considerable consistency. And of course, the fund survived the financial crisis of 2008/09, which we are focusing on.

PIMCO gives investors a great UNII report, so we can easily see if they are covering their distributions. In the case of PCN, they fall just slightly short. For the latest June report, their fiscal YTD distribution coverage ratio is 99.52%. Additionally, their 6-month rolling coverage ratio was 88.96% and 3-month came in at 99.81%, although the fund did pay out a special distribution last year of $0.08.

Overall, one should be cautious. The tight coverage of the distribution may cause issues if we experience a recession and the underlying holdings begin to default. I wouldn't expect an imminent cut though since this is a PIMCO fund, and they will try anything to avoid such a cut. This is another fund, like DNP that trades at a significant premium, and this should be considered before making a purchase!

The other PIMCO fund to make the list. Similar to PCN above, the fund will invest in fixed-income securities. So, we will be looking at high coverage of the distribution through NII.

The fund seeks "current income as a primary focus and also capital appreciation." The fund will invest with "flexibility to build a global portfolio of corporate debt, government and sovereign debt, mortgage-backed and other asset-backed securities, bank loans and related instruments, convertible securities, and other income-producing securities of U.S. and foreign issuers, including emerging market issuers." Additionally, "the fund invests a substantial portion of assets in a variety of mortgage-related securities and may hold common stocks, including those received from conversion of other portfolio securities. The fund may invest up to 40% of its total assets in bank loans (including, among others, senior loans, delayed funding loans and revolving credit facilities).

Just like PCN, this leaves the fund with quite the flexibility. Being able to invest in anything fixed-income practically. Even leaving the door open to common stock, of which an insignificant portion of their portfolio is comprised of.

PKO had an inception date near the end of 2007, so I left 2007 out of the table and graph. However, we can see that PKO was hit with a huge ROC payment in 2009 but subsequently recovered. In fact, a chart of PKO shows the fund rallied considerably after hitting the lows of 2009.

We can look at the same UNII report as we previously did for PCN. PKO has a similar trend in its UNII report as PCN. For the latest fiscal YTD period, PKO comes in at 100.39% coverage. The prior 6-month rolling coverage is 79.54%, with the 3-month coverage coming in at 95.54%. The fund is thinly covering its distribution, with a similar dip in coverage for the last 6-month period as PCN.

PKO had a nice special distribution at the end of last year though of $0.37. Special distributions shouldn't be expected but are always a nice surprise when investors receive them!

Just like PCN though, the tight coverage for PKO should be monitored. Of course, as a PIMCO fund, the distribution is not likely to be cut until the last possible moment. The 8.85% premium that PKO sports isn't actually too bad for a PIMCO fund overall. The z-score would also suggest that the fund isn't grossly overvalued relative to its history either, coming in at 0.40 for the 1-year period.

These 5 funds listed have withstood the severe downturn of 2008/09. The likelihood that they can withstand another recession is quite good. The two that I would be monitoring the closest is PCN and PKO. Otherwise, I believe that BME, UTG, and DNP are well-positioned for another economic slowdown like investors have previously witnessed. I don't believe the next recession is likely to take the toll that the previous great financial recession had, more of a "regular" recession, if you will.

The funds listed here are all relatively pricey though, even to their own historical trading ranges. All the funds trade at premiums. Maybe, for some, there is a reason that they deserve this premium, considering they can have the designation of surviving the GFC - with their distributions intact!

I made my case on why the funds BME, UTG, and DNP should be able to withstand another recession. However, keep in mind that this doesn't mean they are guaranteed to not cut. Circumstances could change, sometimes rapidly.

I am/we are long BME, ETV, GAB, UTG.

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.