ASG - ASG: Underperforming The Large-Cap Indices But Smaller Companies May Eventually Win

2024-04-01 08:21:01 ET

Summary

• The Liberty All-Star Growth Fund offers investors a high level of income while still providing exposure to equity securities.
• The fund has delivered a respectable performance, with a 6.40% total return over three months, although it underperformed the S&P 500 Index.
• The fund's distribution policy and focus on capital gains rather than dividend income may not appeal to all investors, but it has a solid track record of outperforming the S&P 500 Index over the long term.
• Small caps historically outperform large caps, but this has not been the case over the past decade. This needs to reverse for this fund's fortunes to improve.
• The fund's NAV increased last year, but it is still down since 2021. It currently trades at a discount on NAV.

The Liberty All-Star Growth Fund ( ASG ) is a closed-end fund that investors can use to obtain a relatively high level of income without needing to sacrifice the upside exposure that they could otherwise obtain by investing primarily in equity securities. This is a fairly good proposition right now since any attempt by the Federal Reserve to reduce interest rates, as its officials currently claim to be planning, will almost certainly revive the inflationary problems that we experienced back in 2021 and 2022. Common equities are much better at protecting investors against inflation than fixed-income securities, which are the primary investments of most closed-end funds that provide their shareholders with income to meet their daily expenses. Another nice thing about this fund is that the distributions should increase as stock prices rise, thus helping to ensure that your income maintains its purchasing power over time. With that said though, this fund's current 8.01% yield is not as attractive as could be obtained from a good junk bond or leveraged loan fund right now, but this might be a worthwhile trade-off should inflation return with a vengeance.

As regular readers may remember, we previously discussed the Liberty All-Star Growth Fund back in the middle of December. The global equities market since that time has been remarkably strong, in stark contrast to the bond market. As this is an equity fund though, the strength of that market is a much more important determinant of the fund's overall performance. We might therefore expect that this fund has delivered a respectable performance since the date of our previous discussion. This is indeed the case, as shares of the Liberty All-Star Growth Fund have appreciated by 6.40% since the time of our previous discussion. This is quite good for a three-month period but it did still underperform the 11.63% gain that the S&P 500 Index ( SP500 ) delivered over the same period:

For further details see: