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Pondering A Return To Our CEF Roots
Michael Fabian: Out of the sea of uninteresting, useless, or junky funds in the CEF universe, one fund that I have always taken a personal and professional interest in is the Guggenheim Strategic Opportunities Fund (GOF).
This was one of those funds that in the early days was easy to predict and trade based on the typical risk aversion, investor appetite, and premium/discount analysis. Furthermore, it has sported an extremely ostentatious yield in relation to its peers, which has kept investor interest brisk to say the least.
From a management perspective, Scott Minerd has done a masterful job of sidestepping any complete disasters despite a rather rocky CLO equity, ABS, and bank loan environment. Conversely, the equity sleeve within GOF has been consistently etched from low-cost and broadly diversified small, mid, and large-cap stock ETFs. My only wish is that he would integrate more strategic asset allocation shifts based on his regular monthly commentary letters, which in my opinion is a must-read piece for all CEF investors.
Over the last several years, GOF has exhibited a wide trading range in relation to its trailing averages. This type of price action can provide investors with a secondary source of total return if purchases have been made on the low end of those averages. On balance, I haven’t always agreed with Guggenheim as a fund sponsor with regard to corporate actions, shelved offerings, and persistent negative UNII. Nevertheless, I still like the fund because it’s one the few balanced strategies within the CEF universe that offers a unique and exotic approach to asset management.
I bring up GOF at this point in time because I think the balance of risk and reward look pretty good in relation to many other funds on my watch list. This is a fund that can persistently trade at a 10% premium to NAV as evidenced by its past performance.
However, it is currently trading at a 2.5% discount to NAV primarily as a result of near-term risk asset volatility and because of the fund’s dependence on capital appreciation to meet its distribution policy. That certainly calls the sanctity of the dividend into question, but GOF’s trustees have persisted through similar sell-offs without a downward revision. Just keep in mind that capital appreciation has been a rare commodity in the current closed-end fund landscape.
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Source: http://etfdailynews.com/2016/03/11/pondering-a-return-to-our-cef-roots/
