股票CEF：在贸易战中生存的基金

We all know REITs and utilities are where investors flock to this year for safety.  And REIT CEFs, particularly from Cohen & Steers, have been market leaders all year long.

But with the trade-war now moving into uncharted territory, I\'m not sure even those sectors are going to hold up if a recession spreads from foreign shores to our own.

Where to turn?  Well, how about a global long/short equity/fixed income CEF whose NAV is actually positive since the market highs 4-weeks ago?

Then throw in a -13.6 market price discount and an 11.7% market price yield and you\'ve got an opportunity that no one else sees.

One of the hallmarks of my weekly equity CEF performance spreadsheets that I make available to subscribers is the ability to sort the funds by a variety of statistics over whatever time periods you choose.

Four weeks ago on July 26th, the US equity markets were at their closing high. Since then, the markets, as measured by the

S&P 500 (

)

,

, have given up -5.7% of their value.

Equity CEFs offer a variety of investment and income strategies. Some maximize their income and appreciation potential in a bull market and some are more geared for down and even bear markets, so I thought it would be interesting to run a 4-week NAV performance to see which funds are holding up the best, since this can often uncover funds that are being misjudged and perhaps offering an opportunity.

Here are the results comparing my spreadsheet from Friday, July 26th to the spreadsheet from Friday, August 23rd showing the top 30 funds sorted by total return NAV performances (shown in green):

As you can see, 8 funds are showing positive total return NAV performances over the past month even as S&P 500 dropped -5.7%. And all of these funds are holding up better at NAV (not necessarily market price) than the S&P 500, which is why they are shown in green.

.

The top 4 funds are all REITs, three of which come from Cohen & Steers. After that, you have some utility focused funds that are scattered among the top 10 or so. All of the REIT and utility focused funds have performed well this year as they are looked upon as reliable dividend payers in a collapsing bond yield environment. However, I want to call your attention to the one fund that also shows a positive NAV over the last 4 weeks but is neither a REIT nor a utility focused fund.

That fund is #8 on the above list, the

Clough Global Dividend & Income fund (

)

,

. Clearly, investors know what they are getting in REIT and utility focused funds since most of these funds have 'REIT' or 'utility' in their name. As a result, many have moved to premium valuations just because of that and are shown in red in the

column above.

I mean, you can't be much clearer than the

Gabelli Utility Trust (

)

, a CEF that trades at a mind-boggling 40.3% market price premium, the highest of any CEF and actually down from a 50% market premium less than a month ago. How many unsophisticated investors are buying GUT at a $6.96 current market price just to hide out in utility stocks and generate some income unknowing about the fund's premium valuation? In other words, if the fund ever liquidated or converted to an open-end fund, that they would immediately lose -28.6% of their investment?

Well, if all you saw was 'utility' in the name, then probably quite a few are buying just on that one feature alone. So when an investor sees '

' in a fund's name, it's safe to say that they are probably not associating it with a long/short fund. And that's probably a big reason why investors are more apt to sell GLV than buy it when the markets head south.

How do I know? Because GLV's discount has actually

over the past 4-weeks despite the fact that GLV's NAV has actually been positive during that same period of time. But before I get into GLV, let me give you a little background on the Clough CEFs in general.

is certainly not a household name when it comes to investment management but as it turns out, they are one of the few fund sponsors in which their Closed-End funds represent the bulk of their assets managed.

Collectively, their three CEFs,

(

)

,

(

)

and

(

)

, represent over half of their $1.8 billion in managed assets spread among institutional accounts and open-end funds as well. All three of their CEFs use a global equity long/short strategy that includes leverage, corporate bonds, treasury bonds, preferred securities and even other CEFs to offer exceptionally high-yielding funds. More on that below.

The big difference in the funds is their equity/fixed-income weightings where the

Clough Global Equity fund (

)

has the highest equity exposure at 75% and the lowest fixed-income exposure at only 3.6%, the

Clough Global Opportunities fund (

)

has the next highest equity exposure at 71% and 16% fixed-income and the

Clough Global Dividend & Income fund (

)

, the subject of this article, has the lowest equity exposure at 50.5% equities and the highest fixed-income exposure at 28.2%.

Now there are plenty of equity based CEFs that use a leveraged stock and fixed income portfolios like the Clough funds but the big difference is that the Clough CEFs also

stocks and ETFs as a hedge to their long equity positions. This makes for much more actively managed funds as there are many moving parts that the portfolio managers have to keep an eye on.

What this also means is that the Clough funds have very high expense ratios of over 3% since active management, leverage and especially shorting dividend paying securities all add up. That certainly is a red flag for the funds but Clough offsets that to a large degree since all three funds have adopted 10% annual NAV distribution policies which adjust every month based on the prior month's average NAV.

There are several reasons why GLV offers an incredible opportunity in this market environment. First, among the Clough CEFs, GLV trades at the widest discount at -13.6%, which means it has the highest windfall market yield at 11.7% paid monthly.

Second, because GLV has the highest fixed-income exposure of the Clough funds, it's not only the most defensive but it also is reaping the benefits of the collapse in interest rates much more. Here is a breakdown of GLV's portfolio as of 6/30/2019, the latest report available.

What you'll notice is that GLV's fixed-income portfolio includes a heavy allocation to US government Treasury bonds and notes, which just seem to keep going up in price and down in yield.

But just as important, GLV's even higher corporate bond exposure is all investment grade BBB or higher, i.e. no junk bonds, with most being AAA-rated. High yield junk bonds, which is what most leveraged CEFs choose to overweight because of their higher yields, are

more risky and will react much more negatively to a recessionary environment than any positives from falling interest rates.

The fact that GLV and indeed, all of the Clough funds only own investment grade corporate bonds is a major plus and is especially advantageous for GLV due to its much higher fixed-income exposure.

Clough separates its CEFs from virtually all other CEFs by shorting stocks and ETFs as a hedge to their long positions. In other words, the Clough funds may have their largest long sector exposure in financials and healthcare/biotechnology stocks but that is where they concentrate their short stocks and ETFs too.

This basically means that Clough is hedging their long sector picks with short sector picks or ETFs that they see as more vulnerable to the downside. This analysis does not look into how effective the long/short strategy has been but you can see GLV's long/short positions on pages 14-16 from their latest portfolio holdings as of April 30th, 2019 in their Semi-Annual Report.

So for example, GLV's largest financial holdings as of 6/30/19 are in

Citigroup (

)

,

of total holdings and

HDFC Bank Ltd (

)

,

of total holdings. Together, they represent a greater percent than the entire short exposure in financial stocks as of 4/30/19, though these positions could have easily changed since then.

The other Clough funds tend to have the same short positions and by far their largest net short exposure is in healthcare and biotechnology. Though historically, this long/short strategy has had mixed results as you might expect in a mostly bull market, what's important now is where the markets go from here.

Of the Clough funds, GLV will have the least NAV upside in a bull equity market simply because it has the lowest equity exposure, but it will also be the least volatile in a more difficult market environment. The fund could even see its NAV appreciate in a down market just like from the top table above in which GLV's NAV was up slightly over the last month even as the S&P 500 dropped -5.7%.

Data by YCharts

So extrapolate that and you'll see that

we are in a new paradigm in the markets in which a trade war with China results in continued stock market volatility with a downward bias even as treasuries and other conservative fixed-income sectors benefit, GLV may just be hitting its sweet spot with its heavy fixed-income exposure and short stock/ETF exposure.

But its when you perform a relative valuation analysis on GLV, that you realize how ridiculously undervalued this fund is compared to other CEFs if the last month is any indication of what to expect going forward. For a fund like GLV that closed at a

on Friday, that represents a -13.6% discount to its

Well, let me compare GLV to another leveraged equity and fixed-income CEF that has some rather interesting comparables. The

Delaware Investors Dividend & Income fund (

)

,

, is a fund I like to compare other CEFs to since if DDF can trade at a 27% market price premium (actually down from a 35% market price premium), then I ask what should other similar equity CEFs be trading at?

In the case of GLV and DDF, both funds are roughly the same size at $85 million or so in net assets, so if an institutional investor wanted to have some control over the market price due to the fund's small size and low daily volume of shares traded, which is what I believe has helped DDF attain its astronomical 27% market price premium, they could do the exact same thing with GLV. But perhaps the biggest comparable between the two funds and the reason why DDF skyrocketed in the first place last year, is because both funds have now adopted 10% NAV distribution policies.

The fact that a leveraged long only equity/fixed-income CEF like DDF could rise to a 27% market price premium makes we wonder what a fund like GLV,

, should rise to if the stock market continues to weaken while bonds (not high yield which is what DDF owns) continue to rally. If this happens, do you want to know how far behind the curve investors are in these funds?

On Friday, the

S&P 500 (

)

, dropped -2.6%. GLV's NAV

(

)

however dropped only -5 cents, or -0.4% while DDF's NAV

(

)

dropped -2.4%. This is what you can expect if the trade war continues or if a global recession gets worse.

Then consider that because GLV trades at a -13.6% discount, that 10% NAV distribution policy means any new investor receives an 11.7% current market yield. On the other hand, DDF's premium valuation means any new investor doesn't even get a 10% yield but rather an 8.2% market yield.

I mean the positives just keep getting better for a fund like GLV if you believe, like many REIT and utility fund investors, that we are heading into a much more difficult market period. And the ultimate insult to GLV? DDF's current market price of $13.26 is

than GLV's current market price of $10.59 even though GLV's NAV is significantly higher than DDF's! Play with that one if we go into a correction or bear market!

I am/we are long GLV, SPY.

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.