FOF - FOF: Appears To Be Making Some Smart Moves But Investors Pay A High Price

2024-03-08 02:23:12 ET

Summary

• Cohen & Steers Closed-End Opportunity Fund provides investors with a high level of income through its investments in other closed-end funds.
• FOF has delivered a 12.28% gain in five months, although it underperformed the S&P 500 Index.
• The fund's recent portfolio changes, including a reduction in fixed-income holdings and an increase in commodity funds, may benefit shareholders.
• The fund's asset allocation could be questionable, as it appears to have a very strange definition of "commodity fund" that certainly differs from most investors.
• The fund did fully cover its distribution in the most recent year, but it trades at a premium.

The Cohen & Steers Closed-End Opportunity Fund ( FOF ) is a closed-end fund that excels at providing investors with a very high level of income. This makes a great deal of sense because the fund, as the name suggests, devotes its efforts to purchasing shares of other closed-end funds. As everyone who regularly reads my work on Seeking Alpha is undoubtedly well aware, closed-end funds tend to have some of the highest yields that can be obtained anywhere in the capital markets because they pay out all of their capital gains, dividends, and other investment profits to their shareholders. This is one of the major factors that differentiates them from other types of funds, such as open-ended and exchange-traded funds. The Cohen & Steers Closed-End Opportunity Fund collects all of these distributions and then pays them out to its own shareholders. This has allowed this fund to boast a 9.21% distribution yield, which is easily among the highest yields that can be obtained from anything apart from leveraged loan funds in today's market environment.

As regular readers can likely remember, we previously discussed the Cohen & Steers Closed-End Opportunity Fund in the middle of October 2023. The market since that time has been rather strong as various market participants began to anticipate a reversal of the Federal Reserve's monetary tightening policy and a return to the heady days in which money was basically free. This optimism began in force in late October, so it would have been in effect for much of the intervening period since we last discussed this fund. As such, one might expect that the fund has handed its investors a reasonably solid performance. This has certainly been the case, as shares of the Cohen & Steers Closed-End Opportunity Fund are up 12.28% since the date that my previous article was published. This is a reasonable performance over a roughly five-month period, but it is still worse than the 17.35% gain that the S&P 500 Index ( SP500 ) delivered:

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