Cornerstone Strategic Value Fund Is No Panacea

I wrote in last Sunday’s Kelly Letter about a closed-end fund called Cornerstone Strategic Value (CLM $11.50 -2% YTD). It’s one of many securities I’m auditioning to play a part in an Income Sig strategy for retirement.

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Please remember that this is a research phase.

None of the funds I’ve referenced is a recommendation. I don’t know yet whether I will reach a level of confidence high enough to release an Income Sig plan at all, much less what specific funds would power it, nor what rules would guide it. The result of this research could be nothing more than a regularly updated table of income assets to accompany a slimmed-down Sig System portfolio for retirement. Please don’t jump the gun and load up on funds I mention during this research phase.

About CLM, I wrote last Sunday:

“If a retiree had put that $1M into CLM at its closing price of $8.02 on 3/30/20, the date our Q1 2020 orders filled, they would have purchased 124,688 shares.

“Those shares would have kicked off a $23,105 monthly income last year and a $19,975 one this year, as the untouched holding grew in value to $1,417,703 today.”

You may wonder, “What in the world could CLM own to kick off that kind of monthly income while also growing capital 40% in a year?”

It does, indeed, look like a free lunch—and you know what they say about those.

The answer: nothing. There is no portfolio good enough to deliver CLM’s results of the past year. The secret to its high yield is that it pays from proceeds of new rights offerings. From Investopedia:

“A rights offering (rights issue) is a group of rights offered to existing shareholders to purchase additional stock shares, known as subscription warrants, in proportion to their existing holdings. These are considered to be a type of option since it gives a company’s stockholders the right, but not the obligation, to purchase additional shares in the company.

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You can learn more about the way I use leveraged ETFs in The Kelly Letter at jasonkelly.com

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