Marty Fridson is a leading specialist in dividend investing; here, the editor of Forbes/Fridson Income Securities reviews a recently recommended closed-end fund for income investors.
Cornerstone Strategic Value Fund (CLM) is a four-star rated fund by Morningstar, with the objective of seeking long-term capital appreciation. CLM invests primarily in U.S. and non-U.S. equity securities. The portfolio is composed of common stocks, preferred stocks, convertible securities, and closed-end funds.
As of 12/31/22, equity securities accounted for almost 100% of the fund’s portfolio. Sector exposure was largely Information Technology (23.7), followed by Health Care (12.0%), Financials (11.3%), Consumer Discretionary (8.7%), and Communication Services (8.1%).
The portfolio’s top five holdings were Apple (AAPL), a 6.9%; Microsoft (MSFT), at 6.3%; Alphabet (GOOGL), at 4.3%; Amazon (AMZN), at 3.3%; and UnitedHealth Group (UNH), at 2.8%.
Historical performance has been reasonably good, with an average five-year market price total return of +8 .30% through 12/31/22. However, market price total return for full-year 2022 dropped to -35.96%, reflecting the sharp declines in most non-energy equity sectors because of climbing interest rates and inflationary pressures.
CLM has a managed distribution policy (MDP), with interim adjustments if necessary due to market conditions . Distributions have been maintained through historic economic volatility and challenging market conditions. In recent years, however, investments have failed to provide the necessary high income to meet requirements.
As a result, distributions have included gains and a return of capital, reducing CLM’s net asset value (NAV), thereby increasing the premium to NAV. Distributions are largely taxed at the 15%-20% rate or lower. This investment is suitable for medium- to high-risk portfolios. Buy at $11.00 or lower for a 13.40% annualized yield.
