URTH - CSQ: A Good Alternative To An S&P 500 Index Fund For Income-Seekers

2025-03-24 17:03:05 ET

Summary

• The Calamos Strategic Total Return Fund offers a 7.41% yield, significantly higher than major indices, making it appealing for income-focused investors like retirees.
• Despite its lower yield compared to peers, the CSQ fund's distribution appears to be viewed as sustainable by the market.
• The fund's high exposure to technology stocks and leverage has led to recent underperformance, but its overall total return remains competitive with the S&P 500.
• The fund's management seems to be betting on a recovery in Tesla's stock price, but that may be a questionable bet.
• Trading at a slight discount to NAV, the fund is more expensive than peers but remains a viable high-income alternative to traditional index funds.

The Calamos Strategic Total Return Fund ( CSQ ) is a closed-end fund, or CEF, that provides an attractive way for an investor to get exposure to some of the highest-performing stocks in the market along with a greater level of income than is provided by any of the major domestic equity indices. This is a proposition that could prove to be very appealing to retirees or anyone else who is attempting to live off of or use their portfolio to supplement their incomes. After all, the S&P 500 Index ( SPY ) only has a 1.27% yield at the current share price. As such, a $1 million investment in the index will only generate $12,700 per year in annual income. That level of income is unlikely to be sufficient to support anyone who has earned enough to build up a $1 million portfolio in the first place. At this point, there may be some readers who point out that the low yield from the index can be supplemented with capital gains to earn a respectable level of income overall. However, that thesis depends on the market always going up, and as we have seen over the past few months, this is not always the case. For example, the S&P 500 Index ( SP500 ) is down 3.64% year-to-date:

Other major domestic and global stock indices have similarly low yields:

The MSCI World Index is the highest-yielding of the four indices (the three shown in the chart plus the S&P 500 Index) and even it would only produce $14,800 in annual income from a $1 million investment. That is hardly enough to satisfy anyone in need of income. After all, that is actually less than the annual income provided by a full-time job at the federal minimum wage. Thus, anyone trying to use their portfolio to supplement their income in retirement is going to need something better....

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