Agood hunting ground for double-digit yields is the world of closed end funds (CEFs), as my colleague Tim Melvin often points out.
For those of you who are unfamiliar, CEFs are a type of fund that issues a fixed number of shares through a single initial public offering (IPO) to raise capital for its initial investments. Its shares can then be bought and sold on a stock exchange, but no new shares will be created and no new money will flow into the fund.
That means the shares can trade at a premium or discount to the net asset value – meaning you can buy a fund that owns great stocks for less money than the shares you get to control are worth.
A very popular CEF is the Liberty All-Star Equity Fund (USA). Its investment objective is to seek total investment return, consisting of long-term capital appreciation and current income. Since its inception in 1986, USA has delivered a 2,440% total return.
Multi-Manager Approach
What I like most about this fund is that it uses a multi-manager strategy—without the use of any leverage.
USA allocates its portfolio assets on an approximately equal basis among several independent investment managers (currently five of them), all with different investment styles, recommended and monitored by USA’s investment advisor, ALPS Advisors, Inc.
There are three value managers—Aristotle Capital Management, Fiduciary Management, and Pzena Investment Management—along with two growth managers, Sustainable Growth Advisors and TCW Investment Management.
So, you have access to five portfolio managers using different styles in one package. USA’s 0.93% total expense ratio is not only reasonable within the CEF universe, it’s fantastic for a fund of funds.
The fund’s portfolio clearly reflects the various investing styles coming together under a single umbrella and is quite diversified. The value part is quite evident in the 21.2% allocation to financials, and the growth part shows up in the 21.4% allocation to the technology sector.
Here are the other sector allocation percentages…
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