USA CEF: 11% growth in yield and value vs. ASG yield growth of 10% (NYSE: US)
We’ve covered many closed-end funds (“CEFs”) and other high-yield vehicles over the years in our articles. Liberty All-Star Equity, (NYSE: United States) and its sister fund, Liberty All-Star Growth Fund (ASG), are 2 CEFs that use multiple managers to focus on a variety of styles.
USA is a core equity fund that takes a multi-pronged approach to its investments, using 3 value portfolio managers and 2 growth managers with expertise in different slices of the market:
The US closed-end fund, ASG, specializes in growth stocks and uses 3 managers, each focusing on different market capitalization sizes:
The United States is much larger than ASG, with almost 5 times the amount of assets, at $1.9 billion, compared to ASG’s $390 million; and a much higher daily volume of 1.31M, compared to ASG’s 252,000. Volume has slowed for ASG recently – it averaged 343,000 in February 2022. The US has 154 holdings, compared to ASG’s 119. Both funds were created in 1986.
Both funds pay variable quarterly dividends – US dividends are based on 10% of its net asset value per annum, payable in four quarterly installments of 2.5% of the Fund’s net asset value at the close of the NYSE on Friday preceding each quarterly statement Date. The ASGs are based on 8% of its net asset value per annum, payable in four quarterly installments of 2%.
Through 2021, both funds have seen strong 5-year average dividend growth, with ASG leading with 25% and the US with 13%. However, since both of their dividends are based on % of NAV, quarterly payouts tend to decrease in bear markets and increase in bull markets.
With the S&P down nearly 19% in 2022, both funds have lowered their quarterly dividends this year – the US fell from $0.21 to $0.20 in Q1 22, then to $0.18 for T2 22.
ASG went from $0.17 to $0.15 in Q1 ’22, then to $0.14 for Q2 ’22.
With a price drop of around 38% in 2022 to $6.39, the US returns 11.27%, while ASG returns 10.05%. They are both expected to become ex-dividend on 7/22/22, with a payout date of 9/8/22.
ASG has had a lower dividend payout ratio than the US for the past 2 years, but both funds’ payout ratios have increased significantly in 2021.
The ratio of dividends to realized and net investment earnings in the US actually increased to over 100%, reaching ~108% in 2022, as its earnings were not sufficient to fully cover its distributions. However, the US also saw a major increase of around 3X in net unrealized appreciation to around $246 million from around $79 million in 2020.
ASG’s dividend payout ratio also increased in 2022, to ~95% from ~61%, but its earnings were enough to cover its dividends. ASG also recorded $9 million of net unrealized appreciation:
Regular US quarterly distributions in 2021 ranged from $0.19 to $0.21 and were made up of 68% long-term capital gains, 12% qualified and non-qualified ordinary dividends and approximately 7 % return of capital.
ASG’s quarterly distributions in 2021 ranged from $0.16 to $0.17, plus a $0.52 payout, and were comprised of 49% non-qualified ordinary dividends, 48% long-term capital gains term and approximately 3% qualified dividends:
United States: As of 03/31/22, technology, financials, healthcare and consumer discretionary remained the top sectors in the United States. The top 4 are mostly flat, with financials seeing the biggest move, rising to 18.7% from 17.6% at 12/31/21.
ASG: As of 03/31/22, Technology, Healthcare, Industrials and Consumer Discretionary remained the top US sectors, with very little change in their allocations in Q1 22:
The top 20 U.S. holdings accounted for approximately 31% of its portfolio, as of 3/31/22, with several well-known large-cap names:
ASG’s top 20 is much more varied, with Chegg entering the top 10, along with Progyny and Hamilton Lane:
At its 5/12/22 intraday price of $6.39, the US was selling at a 2.57% premium to NAV, which compares favorably to its average premium of 4.98 % over 1 year, but unfavorably to its 3 and 5 year discounts to net asset value of -1.16% and -3.92% respectively.
ASG’s price on 5/12/22 of $5.57 was 3.53% higher than its 5/11/22 NAV/share of $5.38, just slightly below its average premium of 3 .8% over 1 year, but higher than its average premiums over 3 and 5 years of 2.8% and 1.05%.
A useful strategy when buying CEFs is to try to buy them at higher discounts or lower premiums than their historical averages.
With the S&P 500 down about 19% so far in 2022, as of 5/12/22 intraday, it’s been a tough year for the market, but an even tougher year for the US and the ASG.
The US held up better than ASG, but is still down ~-23% in 2022, underperforming the S&P and slightly outperforming the financials sector.
ASG has seen a much larger downdraft in 2022, at -38%. Both funds have lagged the market and the financial sector over the past year, quarter and month, with ASG posting larger declines.
The United States outperformed the Morningstar US CEF US Equity category based on price and net asset value in 2019-2021. It had a negative return in 2018, but held up better than its category in 2018; and outperformed it in 2017:
ASG beat the US Equity category in 2019-20, but lagged in 2021. It outperformed in 2017-20, although it also had a negative return in 2018:
Over the past 10 years, the US has achieved slightly better total return and price return than ASG:
Since both funds base their dividends on a % of net asset value, a bear market leads to lower dividends. No one knows when the Fed will halt its rate hikes, inflation will recede, and/or the market will rebound, but when the bull market resumes, the US and ASG could be good bets for income investors.
Look for deeper NAV discounts than currently and a price near 52-week lows – currently both funds are at 52-week lows, but their NAV price is still more expensive than historical averages.
All charts are provided by Hidden Dividend Stocks Plus unless otherwise stated.