Our site runs on donations to keep it running for free. Please consider donating if you enjoy your experience here!

Category: Ideas

Gabelli Funds Asset Coverages Remain Solid As a Rock

I’ve been doing some ‘due diligence’ on the Gabelli family of closed end funds and thought I would remind those looking for an ultra safe dividend that is in some cases right close to 6%,

CEFs have to have a minimum asset coverage ratio of 200% on their ‘senior securities (preferreds) and the Gabelli family of funds, which includes the Bancroft Fund (BCV) and Ellsworth Growth and Income Fund (ECF) always provide very nice coverage ratios–in some cases up to 876% (GAMCO Global Gold–GGN).

But like all lower coupon, high quality issues the share price will move in the opposite direction of interest rates, so if you are sensitive to share price movement these probably aren’t for you. On the other hand if you want a solid dividend–ultra solid actually, one should be in some of the Gabelli Family preferreds.

I have a page devoted to CEF preferreds with the coverage ratios posted on it which can be seen here.

Also Gabelli posts their coverage ratios each month and one can watch the changes on the page linked below.

Click here is see the coverages.

Did You Know? General American Investors

I have held shares in the 5.95% General American Investors (GAM-B) for a long time–I think it has been years–certainly off and on for years.

GAM is a solid closed end fund with $1.6 billion in assets and the only leverage they use is this issue of preferred shares—they have a asset coverage ratio of 837% as of 6/30/2024.

The interesting item of note is that the Board of Directors has a buyback in place for the preferred shares anytime they are under $25/share. They have authorized up to 2 million shares being bought (original issue was 8 million shares)–thus far to date they have bought just shy of 400,000 leaving lots of dry powder for further purchases.

Does this buyback authorization help to keep this high quality modest coupon price above $25? Not positive of the answer, but I do know that it doesn’t hurt.

Looking at a 10% Total Return on This Insurer

I continue on the ‘hunt’ for some decent total returns with good levels of safety and have found one that I believe could return 10-17% with decent safety.

Aspen Insurance Holdings which is now owned by Apollo Global (APO) has 3 preferred outstanding at this moment–2 of them are 5.625% issues trading just over $20/share for current yields in the 7% area–the AHL-D issue is here and AHL-E issue is here. This one is favorable for a 10-17% return in the next year–predicated by a continuation in 10 year treasuries moving lower somewhat. While I have said I think rates move higher in the fall–for now they are moving lower and the economy is finally showing some signs of softening and my predications are certainly no better than a ‘coin toss’.

NOTE that the company has a 5.95% fixed to floating issue (AHL-C) now trading at $25.60. Because of the change from Libor to SOFR the company fixed this coupon at 9.59%–this is able to be bought, although there is ‘call risk’ and one shouldn’t pay over $25.60. It just went ex-dividend and can only be redeemed on a dividend payment date (1/1, 4/1, 7/1, 10/1). So if one believes this will remain outstanding for the next year this is a nice return. Little chance for a capital gain with this issue.

To achieve my target we need to see a $2/share move higher in the next year–of course by then we will have a clearer vision of rates ahead of us.

I have reviewed the recent earnings from Aspen and they are solid, although slightly lower than a year ago. These insurance companies have lots of moving parts–underwriting income and investment income and have dealt with lots of adversary in the couple years with the rising interest rates–but now they are seeing increased underwriting income and gains on portfolio holdings. These positive forces should continue as/if rates move lower.

While Aspen is owned by APO they continue to post their financials as if independent on their website. The latest data is here.

Since I have cash in my pocket I will buy one of the 5.625% issues on Monday–which one I am not certain.

These issues are rated BB+ by S&P (reaffirmed 4/12/2024) and Ba1 by Moodys–both a notch below investment grade.

My Worst Performing Holding

It seems weird that the holding which has performed the worst for me over the last year is the one I am most comfortable holding forever–well not forever, but for the time being as long as interest rates remain ‘tame’.

Tri-Continental Corporation (TY), a closed end fund (CEF) has a $50/share preferred which was issued in 1963–the coupon is 5% (or officially it is a $2.50 preferred), but at the current price of $43 the current yield is 5.81%. Not what you call a high yield in these times of HIGH YIELDS, but in my mind the most solid preferred available. The issue is not rated, but when you have a 4000% coverage ratio who needs a rating (all closed end funds must maintain at least 200% coverage on their ‘senior securities’).

TY has net assets of $1.6 billion and over the last 10 years the common shares have returned 10.6% annually. Here is their fact sheet. Just a simple stock and bonds CEF–nothing fancy.

This issue is redeemable at anytime at a call price of $55/share so I don’t have to worry about it being redeemed–just keep drawing the dividend. My share price is down 8% from my average buy price, but I have held it for a long time so I have a positive total return.

The issue is here.

The ticker on Fido it is TYPR on eTrade it is TY.PR – some others have it as TY- or TY-P. If you can’t find it try spelling it out in your symbol box (Tri-Continental Corp).

This is pure ‘sock drawer’ material–at this price 5.81% is not a bad return for the level of safety. One must be patient if buying as the average daily volume of the preferred is very minimal-922 shares per day according to Yahoo.

If you are highly sensitive to share price movements you don’t want to hold this or any low coupon issue when interest rates are racing higher. On the other hand the level of safety certainly provides for a good nights rest.