GUT - Gabelli Utility Trust Is Overpriced At An 87% Premium To NAV But Hard To Short
2024-01-31 16:07:56 ET
Summary
- Gabelli Utility Trust trades at an 87% premium to net asset value, despite lagging behind the Vanguard Utilities Index Fund ETF Shares.
- The GUT closed-end fund's high premium is attributed to its attractive distribution yield of 11.47% and the option for shareholders to exit through rights offerings.
- Shorting GUT and going long on VPU is risky due to high borrowing fees, but the premium to net asset value is declining.
The Gabelli Utility Trust ( GUT ) trades at an 87% premium to net asset value. This is a closed-end fund, or CEF, that's invested in utilities. It has an extremely low turnover of around 1%. The shareholder capital adds up to $221 million and the fund leverages this through $100 million of preferred shares on which it pays ~5%+ and a promissory note of around $20 million. The preferred are trading slightly below par. I checked because it seems like a relatively cheap source of leverage, given short-term interest rates are currently 5%+. It is puzzling to me the fund is trading at such a large premium to net asset value, given it significantly lags behind the Vanguard Utilities Index Fund ETF Shares (VPU):