86 cents buys a dollar
A recent scan of the Stocks Needing More Picks list turned up a closed-end fund that looks pretty interesting. BlackRock's Strategic Equity Dividend Trust (BDT). I like dividends, so took a little closer look.
For those that may not know, a closed-end fund is similar to a mutual fund except the share count is fixed and it trades on an exchange. Since the count is fixed, the shares usually trade at a discount or premium to the assets held by the fund and those pricing disconnects can be significant. On the 15th, BDT closed at $9.63 per share with a net asset value of $11.19 - a 14% discount to NAV (hence the blog title).
BDT holds a portfolio of mostly dividend paying stocks and enhances returns -- or at least trys to -- by writing covered call and put options. The stocks held are mostly small-to-mid caps and the largest holding is Hormel (HRL). As of the most recent report, nearly 20% of the portfolio was overwritten by options, at the upper end of the 10-20% option overwrite the fund targets.
Trailing distribution yield is 6.8% based of Friday's close and the last 12 months of distributions.
There's a lot to like here. The fund is selling at a nice discount to its underlying assets, great dividend yield, professional management from BlackRock. But... quality dividend paying stocks with the covered option kicker should have done pretty well in this year's nutty market -- BDT's dividend adjusted 5% loss trails SPY's 1.3% loss. And the 5-year track record is well below the S&P500.
The underperformance could simply reflect a small cap vs large cap performance gap. Year to date, the S&P500 has outperformed the Russell2000, but the small caps didn't get beaten as badly over the five-year gauntlet.
Here's the fund profile.
I'm torn here. The big discount and big yield are crying for a green thumb and maybe some real cash. But consistent underperformance combined with many, many red CAPS points the last time I tried calling a closed-end fund pick are saying stay away.
How about it fellow Fools. Anyone familiar with this fund?
Fool on! Russ