I assume you’re familiar with the adage about lemons and lemonade: When life hands you lemons, get to work making lemonade, asserts Stephen Mauzy, contributing editor to Wyatt Research's Dividend Confidential.
Life has handed investors a barrel full of lemons over the past month. My recommendation for investors — those with properly diversified portfolios — is to simply ride it out. I assure you that’s what I’m doing with my portfolio. I didn’t sell anything during the previous market sell-off (March 2020). I won’t sell during this one.
Not only did I not sell into the last sell-off, I bought into it. I added new investments to my portfolio. (I suppose you could call it the lemonade.) A couple of months later, we added a list of what we call Shadow Funds to the Dividend Confidential portfolio.
Both discounts to net asset value (NAV) and distribution incomes had risen to a multi-year high at the time. We took the lemons and got to work making lemonade.
We’ll make a little more lemonade today. I’m adding another Shadow Fund to the list. I’m adding the Voya Infrastructure, Industrial, and Materials Fund (IDE). Voya is a closed-end fund (as are all our Shadow Fund recommendations). It owns a diversified portfolio of 283 stocks.
As the fund name suggests, the securities offer exposure to the infrastructure, industrial, and material sectors. The fund invests in companies that should benefit from the building, renovation, and expansion of business infrastructure. It’s mostly large-cap stuff. Top-10 holdings include Cisco Systems (CSCO), Deere (DE), BHP Group (BHP), NextEra Energy (NEE), and CSX Corp. (CSX).
The Voya fund diversifies further by geography. Forty-four percent of the investments are U.S.-based. The rest are spread around the other major world economies: Japan, Canada, France, Germany, United Kingdom, China, and Australia.
Voya is on sale. Its shares trade at a 13% discount to net-asset value (NAV), the value of the securities it holds. Think of buying a dollar for eighty-seven cents. Over the past 52 weeks, the shares had traded as high as a 6.3% premium.
Voya’s z-score further buttresses my buy recommendation. The z-score is a statistical measure of value. It tells you the value today compared to historical value. The higher the z-score, the less appealing the value proposition. Here, we seek the negative. Our interest is piqued when we cross paths with a closed-end fund that sports a z-score of -2 or greater. Voya’s z-score is -2.2.
Yield pick-up is another advantage to buying low: the lower the price, the higher the yield. Voya’s lower share price has raised the distribution yield to 8.8%. (The distribution is paid quarterly at $0.229 per share.). In short, we expect to profit from the high-yield distribution, from a rising portfolio value, and a tightening of the discount to NAV.
Yes, I realize it’s scary to buy whenever everyone is selling. That said, history has shown that buying when everyone is selling is frequently the opportune time to buy and profit from a closed-end fund. Voya Infrastructure, Industrial, and Materials Fund is a "buy".
