USA CEF: 11% growth in yield and value vs. ASG yield growth of 10% (NYSE: US)

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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:
US site
The US closed-end fund, ASG, specializes in growth stocks and uses 3 managers, each focusing on different market capitalization sizes:
ASG website
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.
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Dividends
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.
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Dividend coverage
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:
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Taxes
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.
US site
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:
ASG website
Assets
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.
US site
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:
ASG website
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:
US site
ASG’s top 20 is much more varied, with Chegg entering the top 10, along with Progyny and Hamilton Lane:
ASG website
Pricing
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.
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Performance
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.
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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:
US site
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:
ASG website
Over the past 10 years, the US has achieved slightly better total return and price return than ASG:
Y-Charts
Parting Thoughts
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.