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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 Dec. 31, 2022, 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 Dec. 31, 2022. 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.

About the Author

Martin Fridson is the publisher of Income Securities Investor and according to Investment Dealers' Digest, he is "perhaps the most well-known figure in the high-yield world." He has served as a CFA Institute governor and consultant to the Federal Reserve Board. In 2002 the Financial Management Association International named Mr. Fridson the Financial Executive of the Year. The CFA Society New York gave him its Ben Graham Award in 2017.

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