PCF - ECF: Very Attractive Yield And Valuation But Performance Disappoints

2024-04-04 13:10:17 ET

Summary

• The Ellsworth Growth and Income Fund Ltd offers a high level of income without sacrificing potential upside from common stocks.
• The ECF closed-end fund's recent performance has been disappointing, with a 41.67% share price decline over the past three years.
• The fund has been consistently underperforming both common stocks and convertible bonds over both short-term and longer terms.
• The fund appears to be fully covering its distribution and trades at a very attractive valuation.
• The fund makes an interesting proposition for investors, but better total returns can be achieved with ETFs.

The Ellsworth Growth and Income Fund Ltd ( ECF ) is a little-known and underfollowed closed-end fund, or CEF, that investors can employ as a way of obtaining a fairly high level of income without the need to sacrifice the potential upside that they can achieve from an investment in common stocks. This is something that could be important in today’s world, as there is a very real possibility that inflation will be with us for much longer than many market pundits and officials seem to believe.

As we are all no doubt well aware, common stocks are generally considered to provide better protection against inflation than fixed-income securities, which is what most closed-end funds that wish to provide high levels of income invest in. However, the downside to common equity funds is that their yields are almost always lower than what the best fixed-income funds can provide. For example, the Ellsworth Growth and Income Fund only yields 6.54% at the current price. While this is higher than most equity indices and individual common stocks, there are fixed-income funds out there with double-digit yields that might be more attractive for an investor who is just seeking to maximize their current income.

Morningstar classifies the Ellsworth Growth and Income Fund as a “Fixed Income – Taxable – Convertibles” fund, but its holdings do not consist entirely of convertible securities. Here is how this fund’s distribution yield compares to that of similar funds:

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