Marty Fridson is a leading authority on income investing; the editor of Forbes/Fridson Income Securities Investor specializes in finding opportunities in fixed-income securities, including preferreds, convertibles and — in this case — a pair of closed-end funds.
Clough Global Opportunities Fund (GLO) has a current annualized yield of 10.85%; the fund trades at a discount to net assets of 8.46%.
Clough Global Opportunities is a four-star-rated fund by Morningstar, with the primary objective of delivering a high level of total return. GLO pursues its objective through fundamental research-driven investment ideas.
The fund invests in equity and equity-related securities, including call options and exchange traded funds, as well as corporate and sovereign debt.
Depending on market conditions, GLO’s portfolio mix can shift to a heavier weighting in either direction, relying on the fund’s advisor’s outlook. As of 3/31/21, equity allocation made up the lion’s share of the portfolio, with debt securities accounting for just 10.4%.
The fund’s largest equity exposures as a percentage of total equities were Health Care (33.89%), Technology (21.53%), Financial Services (19.80%) and Consumer Cyclical (14.31%).
GLO’s top five holdings at 3/31/21 were all equity related and consisted of PennyMac Financial Services (2.81%), Annaly Capital Management (2.64%), Royal Caribbean Cruises (2.44%), Micron Technology (2.39%), and Samsung Electronics (2.39%).
Performance in 2020 was strong, with a market price total return of 32.77%. For the quarterly period ended 3/31/21 GLO reported a total market price return of 13.17%.
Distributions have historically been taxed as ordinary income. Given the high leverage that this fund employs, we recommend it for medium- to high-risk portfolios. Buy at $16.00 or lower for an 8.15% current yield.
Principal Real Estate Income Fund (PGZ) has a current annualized yield of 6.37%; the fund trades at a discount to net asset value of 9.55%.
The fund seeks to provide high current income, with capital appreciation as a secondary objective. The fund’s strategy is to invest in higher-yielding debt and commercial real estate-related equity investments.
Attractive current income is provided by the allocation to fixed income securities, while the equity allocation offers income with potential capital appreciation.
The fund lowered its shareholder distribution by 27% in November 2020, as many real estate companies struggled with the pandemic during most of last year, adversely affecting associated equities and mortgage-backed securities. However, PGZ recently bumped up its monthly distribution by 3.1% for the May 2021 payment date.
As of 03/31/21, real estate and related entities made up 96.94% of the fund’s sector allocation. Commercial mortgage-backed securities (CMBS) accounted for the largest exposure, with REITs a distant second. The top five holdings at 03/31/21 were all mortgage-backed securities.
Until relatively recently, PGZ’s total return was solid, but 2020’s difficult real estate market conditions weighed on performance, PGZ reported a market price total return of -36.38%, although in the quarter ended 03/21/21 the figure rebounded to 12.85%.
This investment is suitable for medium- to high-risk tax-deferred portfolios. Distributions on this fund have been taxed historically as ordinary income. Buy at $18.00 or lower for a 5.53% current yield.