Equity CEFs: A 3-Year NAV Comparison To Blow You Away

I\'ve been mostly negative on the Cornerstone funds for years but with institutional holders tax-loss selling, I think you can pick up some shares here.

Are the Cornerstone funds\' 21% NAV distribution yields a gimmick? Absolutely, but surprisingly over the last 3 years, the funds have almost covered those NAV yields.

But with all of the funds\' Rights Offerings, it appears institutional investors have finally had enough of the added shares they participated in but are at a loss on.

And with the funds now down from 50%-100% market price premiums to low single digit premiums, are CLM and CRF finally a buy now?

Well, just looking at some comparisons to other equity CEFs on a relative valuation basis, maybe so. Oh, and the bonus with the Cornerstone funds?  You get to reinvest at NAV no matter what the premium.

I think its time to pick up some

Cornerstone Strategic Value fund (

,

and/or the

Cornerstone Total Return fund

(

,

.

Both of these funds have been NAV destroyers over the years due to their set 21% NAV distribution policies but that doesn't mean they haven't actually performed well over the past few years at NAV, despite dropping from lofty premium market price valuations as high as 50% to 100% going back to before the financial crisis of 2008.

But with premiums for CLM and CRF now in the low single digits while "offering" 22%+ market yields, are they buyable? Well, if you compare their NAV performances with other equity CEFs that now trade at high premium valuations, I think so.

Here's one that will blow you away. Let's compare CLM's and CRF's NAV performance over the last 3-years to the

Delaware Investors Dividend & Income fund (

)

,

.

Data by YCharts

That's right, CLM and CRF's NAVs have practically

DDF's NAV total return performance over the past 3 years. And how about market price performance?

Data by YCharts

Does anyone else find this amazing? I mean, why is this happening when CLM and CRF are crushing DDF at NAV? Remember, total return means all distributions, whether at a 10% yield, 15% yield or 21% yield, are included in these market price and NAV total returns.

Well, I believe that the reason why this is happening is that after multiple

over the years for CLM and CRF, institutional investors are finally tax-loss selling their added shares they may not even have wanted in the first place since they were at a premium to NAV (even if they were at a discount to market price). Well, those discounted market prices have all gone away.

But the good news is that with the low market price premiums currently, Cornerstone doesn't seem to need another RO this year but yet the shares are still trading down. So on a comparative valuation basis, DDF at a 30% market price premium is

overpriced and CLM and CRF are downright cheap.

We'll find out in early November what the new distribution reset will be for 2020 but the way things are going, there may not be much of a distribution decrease at all for CLM or CRF. That's because YTD, both funds are on their way to actually

their 21% NAV yields with both up over 19% at total NAV returns.

And the added bonus if the funds

cover their NAV yields, the highest of all CEFs by far, is that those huge distributions will be mostly

for quite some time to come (due to the past years' losses), which is actually a tax benefit for taxable accounts. That's an added bonus if you are a new investor and want to lock in 22% yields,

(or tax-deferred really until you sell your shares).

And the final bonus? You can reinvest those shares at NAV no matter what the market price premium is. Maybe not a big deal when the funds are at 5% market price premiums (probably sub 5% after today), but I guarantee you there will be small retail investors who will buy these funds at 10% to 20% market price premiums once again though you may have to wait until next year when institutional selling lets off.

Just be sure to reinvest your distributions.

I am/we are long CLM, CRF.

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.