Looking for growth with an attractive dividend yield? Any quick study of the “growthy” tech sector will have you thinking that maybe those two goals are mutually exclusive. Tech has one of the lowest dividend yields in the market, at an average of ~1.14%.

But when it comes to performance, though, it’s a totally different story. Tech continues to lead all sectors in 2020, up ~15%, vs. -3.12% for the S&P 500.

There’s another sub-set of stocks within the market that has outperformed this year. Looking at our Market Data page’s Market Cap/Style performance table shows that Large Cap Growth is up 11.16% and Mid Cap Growth is up 5.36% year to date, while the other market caps and investing style groups are all still in the red:

This observation led us to Liberty All-Star Growth Fund (ASG), a veteran closed-end fund which was established in 1986.

ASG is not a multi billion-dollar CEF – it has $260M in net assets, but it still trades 207K shares daily on average. It uses no leverage or covered calls, and has 119 holdings, with a 1.22% expense ratio.

We’ve covered other tech and healthcare-based CEFs in our recent articles, whereas ASG’s initial focus is growth, which happens to be a feature of certain stocks in those two sectors.

ASG primarily invests in growth stocks of companies across all market capitalizations, and it uses three separate investment managers for each market cap segment, which makes sense – why not use a specialist to focus on each segment?

(ASG site)

Holdings:

As of 3/31/20, ASG’s top 10 holdings were heavily skewed toward large cap, with a 39% weight, vs. 13% for mid cap and just 7% for small cap. Take another look at that market cap performance table above – ASG’s 3/31/20 Top 10 weighting is in line with year-to-date market cap performance. However, the Top 10 only represented 18% of the fund’s total holdings.

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ASG’s large cap holdings lead its mid and small cap in average five-year earnings growth, at 18%, vs. 16% and 14%, respectively, and also lead in average five-year sales growth:

(ASG site)

Tech was the top sector, at 34%, followed by healthcare, at 22.6%, consumer discretionary, 14.3%, and industrials, at 12%, as of 5/31/20:

(ASG site)

As of 5/31/20, ASG’s top 20 holdings comprised ~32% of its equity portfolio, with no holding being more than 2% of the total.

(ASG site)

We ran some performance and market cap numbers on most of this top 20 to check out their individual performance, market cap and sector. Most of these stocks are large caps, with the tech sector most heavily represented. The table is weighted by market cap, with the bottom eight holdings being mid caps.

Overall, this group has had a good run so far in 2020 – They’ve outperformed the market, except for three stocks that are in the red year to date – Nike, Fleetcor and Progyny.

ASG’s managers added eight new holdings in Q1 ’20, and added to their position in Progyny, a Health information services stock. Four of their new picks have done well in 2020 – Match, Adobe, Akamai, and Ciena, gaining from 24% to 39% year-to-date, while ISRG, ULTA, and Huntington lost -1.8%, -20%, and -31%.

They dropped nine positions, and reduced their holdings in two others, including biotech Regeneron and Internet retailer Wayfair, which have both soared in the COVID stay at home environment.

(ASG site)

Distributions:

ASG pays a variable distribution, which is currently pegged at 8%/year of ASG’s NAV, payable at 2% quarterly, as measured on the Friday before the quarterly declaration date. The percent of NAV payouts was raised from 6% to 8% in 2015.

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(ASG site)

They paid $.13 in January and $.11 in April, due to the COVID-19 crash pressuring the NAV. Their next declaration should be on ~7/15/20, so the quarterly payout will be based upon the NAV on Friday, 7/10/20.

NAV was $6.54, as of 7/1/20. If that holds on 7/10/20, the next payout should be $.13/share. Using the most recent $.11 distribution, ASG yields 6.85%. If it rises to $.13, the yield would be 8%, at $6.42. On a trailing basis, ASG yields 7.48%.

Pricing:

The general strategy with CEF’s is to try to buy them a steeper discount or lower premium than historical averages. The rub is that the NAV/share is based upon yesterday’s closing data. However, by the time you read this article, we’ll know what ASG’s closing NAV was on 7/2/20.

At $6.42, ASG was selling at a -1.83% discount to NAV on 7/2/20, which is a deeper discount than its one-year and three-year average discounts, but lower than its five-year average discount to NAV:

Performance:

To paraphrase an old pop song, “What a difference two months make.” ASG, like most other funds and stocks, had a miserable Q1 2020 ytd NAV return, of -17.12%. Fast forward to 5/31/20, and this improved to 6.59%, as did its NAV and market price returns for all of these other periods:

(ASG site)

Management puts out a monthly update. This one for May shows a 10.7% increase in NAV for the month, but the price/share didn’t quite keep up with that, so the discount to NAV grew from -4% to -5.2% at the end of the month:

(ASG site)

ASG has outperformed the S&P over the past year, ytd, month, and quarter, but, like most indexes, ETFs, and stocks, has trailed the NASDAQ during those periods, except for the past quarter. Then again, for income investors looking for an attractive dividend yield with Tech and Healthcare exposure, ASG could fit the bill.

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Net Asset Increases 2018 – 2019:

ASG’s net assets increased by $29.6M in 2018 and by $51.98M in 2019, a two-year increase of 53%. Net realized gains on investments covered the distributions in both years.

(ASG site)

Taxes:

Those realized gains were treated as 89.34% long-term capital gains for ASG’s 2019 distributions and 92.65% for its 2018 distributions. The qualified portion was 6.62% in 2019 and 6.98% in 2018.

(ASG site)

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

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Disclosure: I am/we are long ASG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.



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