Out of the sea of uninteresting, useless, or junky funds in the Closed End Fund (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 and discount analysis. Furthermore, in both good ways and bad, it has sported an extremely ostentatious yield in relation to its peers, which has kept investor interest brisk to say the least.
Furthermore, the fund has exhibited a wide trading range in relation to its trailing averages, which provides investors with a secondary source of total return if purchases on the low end of those averages. While I haven’t always agreed with Guggenheim as a fund sponsor with regard to corporate actions, shelfed offerings, and persistent negative UNII. 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.
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 isn’t anything ride home about, mainly consisting of low cost and broadly diversified small, mid, and large cap equity 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.
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 not only as a result of near-term risk asset volatility, but also 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 market landscape.
From a strategy perspective, I wouldn’t expect any miracles in the near term, but the fund has proven to be an excellent performer over the short and medium term. It’s also worth mentioning that because of the large dividend and total return prospects, its always best to own GOF in a tax deferred account.
Lastly, in the interest of full disclosure, while we haven’t made a return to GOF for clients in our Dynamic CEF Income Portfolio as of yet, we are seriously considering it sometime in the near future.