A "Core" Play for Equity Alpha

06/25/2020 5:00 am EST

Focus: FUNDS

Martin Fridson, CFA

Publisher, Income Securities Investor

Nuveen Core Equity Alpha Fund (JCE) has an investment objective to provide an attractive total return, largely through long-term capital appreciation, income, and gains, explains dividend expert Marty Fridson, editor of the Forbes/Fridson Income Securities Investor

The fund is unleveraged and invests in a portfolio of actively managed equities, selected from the stocks that constitute the S&P 500 Index. To enhance risk-adjusted performance JCE employs a strategy of selling call options with a notional value capped at 50% of the equity portfolio. 

Large cap equities account for 99.9% of the fund’s holdings, with Health Care Equipment & Supplies (7.4%), IT Services (7.0%), Equity REITs (5.9%), Specialty Retail (5.2%), and Oil, Gas, & Consumable Fuels (5.1%) making up the top five industries on 12/31/19. 

The fund’s top five holdings on that date were Intuitive Surgical (ISRG); CSX Corp. (CSX), Progressive Corp. (PGR), HCA Healthcare (HCA), and NextEra Energy (NEE). 

Returns have been strong historically, with JCE posting a market price total return of +30.43% in 2019. To date, performance in 2020 has been challenging. 

Through 03/31/20 JCE reported a YTD market price total return of -24.90%. With the idea taking hold that a recovery is not far off, however, we expect this fund to perform well over the near term. 

Distributions have been taxed largely as qualified and ordinary income. This investment is suitable for low- to medium-risk portfolios. Buy up to $17.50 for an annualized 5.71% yield.

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