USA: 9% Yield, Growth And Value, 5% Discount – 2024 Pick Along With ASG (NYSE:USA)

With the 2023 market behind us, we took a look at how two popular closed-end funds – the Liberty All-Star Equity Fund (NYSE:USA), and its sister CEF, the Liberty All-Star Growth Fund (ASG), have performed over the short and long term. This article also covers their current valuations, dividend yields, and holdings.

Fund Profiles:

“The Liberty All-Star Equity Fund is a core equity holding that allocates its assets to three value style investment managers and two growth style investment managers. As is well known to professionals, market sentiment routinely rotates among these two principal investment styles as market and economic conditions change. At any point in time, one style is usually favored over the other. By allocating its assets to multiple managers representing both styles, the Fund seeks more consistent performance, which, over time, can produce better results than more volatile single-manager funds.” (USA site)

“The Liberty All-Star Growth Fund follows a similar principle but with an exclusive focus on growth style investing. The Fund allocates its assets among three investment managers, each specializing in either large-cap, mid-cap or small-cap growth style equities, thus diversifying the Fund across the capitalization spectrum. The result is a high-quality, multi-cap growth holding for long-term investors.” (ASG site)

Although both funds started in 1986, USA is by far the larger of the two, with $1.83B in assets, vs. $337M for ASG. USA’s average daily volume is also over 4X that of ASG. It has 149 holdings, vs. ASG’s 118, and uses a tiny amount of leverage, at 1.32%, vs. 0.31% for ASG. USA’s trailing P/E is 6.50, a bit cheaper than ASG’s 7X figure:

Dividends:

USA’S distribution policy is to pay distributions on its shares totaling ~10% of its net asset value per year, payable in four quarterly installments of 2.5%.

Distributions are paid in newly issued shares to all shareholders except those who are not participating in USA’s Dividend Reinvestment Plan, and who elect to receive the distribution in cash. (USA site)

USA’s most recent quarterly distribution was $.15, down from $.16 in the previous quarter. At its 2023 year ending price of $6.38, USA yields 9.40%. It has a minimal five-year dividend growth rate, of just 0.20%.

ASG’s current annual distribution rate is 8% of the fund’s net asset value (paid quarterly at 2%/quarter). At its 2023 year ending price of $5.28, ASG yields 7.58%. ASG has an attractive 6.78% five-year dividend growth rate.

Both funds should go ex-dividend next on ~1/19/24, with a ~3/6/24 pay date:

Holdings:

USA: As of 11/30/23, its top sector is tech, at 22.3%, vs. 21.4% at 8/31/23. Financials are also up, at 21.8%, vs. 21.2%. Consumer discretionary is down, at 12.2%, vs. 13% on 8/31/23. The other sectors are roughly even with their 8/31/23 allocations.

USA’s top 10 includes many mega cap household names, such as Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOG) (GOOGL), in addition to familiar large cap names, such as UnitedHealth Group (UNH), Visa (V), and Nvidia (NVDA), which rose ~239% in 2023, on the back of its AI connections.

USA added Danish biotech giant Novo Nordisk A/S (NVO) and US semiconductor firm Skyworks Solutions (SWKS), and liquidated its holdings in PayPal (PYPL), Regeneron Pharmaceuticals (REGN), and Skechers USA (SKX).

ASG: Healthcare and Industrials remain ASG’s biggest sectors, and allocations have increased a bit since 8/31/23: Healthcare rose to 22.1%, vs. 20.5%, and industrials rose to 16.4%, vs. 14.6%.

ASG’s biggest sector allocation differences vs. USA are in healthcare, 22% vs. ~14%, industrials, 16.4%, vs. ~8% at USA, financials, at 12.7% vs. 21.8%, and communication services, 3.3% vs. 5.8%. Materials and consumer staples also have smaller allocations than at USA.

ASG’s top 10 has some of those same familiar names, but also includes SPS Commerce (SPSC), a cloud-based supply chain management services firm, and FirstService (FSV), a Canadian Real Estate services company.

ASG also added Novo Nordisk since 8/31/23, in addition to Cadre Holdings (CDRE), an Aerospace & Defense firm, and Savers Value Village (SVV), a second-hand merchandise US retailer.

ASG liquidated its holdings in Axos Financial, Regeneron Pharmaceuticals, and MYT Netherlands, a Dutch luxury goods company.

Performance:

We began covering these two CEFs back in September 2020. Since then, USA has done much better than ASG, with a ~42% total return nearly tracking the S&P, while ASG has been flat.

Even better for income investors, USA had cumulative distributions that equaled over 37% of its original 9/16/20 cost, vs. 6.3% for the S&P.

More recently, USA’s total one-year return was ~23%, vs. 27.67% for the S&P, and 17.36% for ASG, which has begun to attract more support over the past month, outperforming USA and the S&P.

Looking back over the past five- and 10-year periods shows USA outperforming ASG on a price and NAV return basis, but not by the large amounts it achieved over the past one-year and three-year periods. ASG outperformed USA over 15-year and 20-year periods, as of 11/30/23.

ASG’s long-term performance:

Valuations:

A useful strategy when buying CEF’s is to try to buy them at deeper discounts or lower premiums than their historical averages due to mean reversion. NAV is measured after the market close.

As of the 12/28/23 close, USA was selling at a 5% discount to NAV, which is much cheaper than its one-, three-, and five-year averages.

ASG was selling at a 7.9% discount to NAV, which is also cheaper than its one-, three-, and five-year discounts.

Parting Thoughts:

With interest rates probably receding in 2024, ASG should get more support from the market. USA’s tech holdings should also benefit from lower rates. We rate both USA and ASG as Buys.

All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted