From our experience, if you are interested in closed-end funds, then you typically fall into two groups of investors: dividend seekers or contrarians.
Regarding contrarian investing, can investors currently find value amongst the roughly 219 available equity closed-end funds (CEF)? For those not familiar with some of the data we collect and use, please review CEFA’s CEF Data Definitions. Data used in this article is from our weekly CEF data service, “CEFA’s Closed-End Fund Universe” dated December 28, 2012.
1.) Less than 15 percent of assets invested in US stocks;
2.) Current discount to NAV of more than -10 percent;
3.) Relative discount wider than -1.5 percent (90 day average discount);
4.) Comparable discount (vs. peer group average) wider than -2 percent;
5.) 1 year Z-stat of less than -1.0;
6.) Relative Z-stat of less than -0.5;
7.) 1 year discount range under 15 percent;
8.) 52-week relative market price under 33 percent;
9) 1-year NAV total return performance above + 10 percent through December 28th 2012;
10.) Trading more than 30,000 shares per day.
Concerns: 81 percent of the dividend over the past 90 days is classified as return of capital, however BGY cut the dividend by -24 percent in September of 2012. We anticipate the next quarterly dividend announcement date to be on Friday, March 1.
Concerns: Return of capital is listed as 73 percent over the past 90 days, but the trend of RoC is down which we favor. The dividend level was cut -18 percent in December which often is a better time to buy into a fund.
Conclusion: While we did not search for above normal dividend paying funds when we conducted our research, we ended up identifying funds with significant dividend levels. It should be noted that the average equity CEF currently has a total yield of 7.2 percent which makes this possibility unsurprising.