GLV - GLV: Moving From Sell To Hold After The Drawdown

2023-03-30 20:52:00 ET

Summary

• The Clough Global Dividend and Income Fund is a CEF with an 80% equities, 20% bonds portfolio.
• We rated this CEF a Sell late last year.
• Despite the S&P 500 being up in 2023, GLV is down more than -11%, and down -16% since our rating.
• The fund was also forced to cut its distribution recently.
• This name is no longer a Sell candidate so we are moving on Hold here.

Thesis

We covered the Clough Global Dividend and Income Fund (GLV) at the end of 2022 when we assigned it a Sell rating:

From a price perspective the CEF is down almost -17%, while from a total return standpoint it has lost only -13%. The fund has been dragged down recently by its position in Financials and its high leverage ratio of 47%.

The Clough Global Dividend and Income Fund is a CEF with an 80% equities, 20% bonds portfolio. On the equity side the fund is overweight Financials and Tech, while on the bond side the vehicle has a high allocation to investment grade bonds.

Although many equity sectors are up in 2023, GLV is not. The fund had a high allocation to the financials equity sector which dragged it down. It has made some changes recently, with Energy being shuffled up, together with some REITs:

It is going to be a tough year for GLV. The fund was forced to cut its dividend recently which we cover in the below 'Distribution Cut' section. There is nothing in the fund's portfolio which is a red flag at the moment, but since its leverage is high it can move fast. Conversely if we see a stabilization and moderate recovery GLV can shoot up fairly fast.

After getting our Sell call right and a substantial drawdown, we do not see this name as a clear cut Sell candidate anymore, hence we are moving to Hold. A retail investor though needs to understand this is a highly leveraged name that will generate a lot of volatility (please keep in mind volatility is not directional).

Distribution Cut

As anticipated, the CEF cut its distribution due to its very poor performance:

When you see yields in excess of 10% in the CEF world, unless the fund has a very strong performance you are looking at unsupported yields. That was the case here, and the manager had to adjust the dividend lower.

The best 'canary in the coal mine' for dividend cuts is the NAV performance:

We can see almost a halving of the NAV since mid-2021, so the distribution cut was certainly coming.

Performance

The fund is down year to date, when the S&P 500 and AOR are both up:

Longer term the fund is a laggard:

Long term performance is really a reflection of the portfolio manager. To the extent the correct trends are captured, alpha can be generated here. Conversely poor managers tend to lag, although they do post good positive results in bull markets.

Premium/Discount to NAV

The fund has now moved to the bottom of its historical discount range:

Historical ranges are powerful tools, and a retail investor should never sell at the bottom. Outside true panic events, such as the Covid scare, the bottom of the range should hold.

We like to sell CEFs when there are several red flags around them such as high premiums to NAV versus range, poor prospects for the asset class and unsupported dividends.

GLV has closed some of the gaps: the dividend has been cut, the CEF is now trading at historic wide levels to net asset value and the asset class has stabilized for now.

Conclusion

The Clough Global Dividend and Income Fund is a CEF with an 80% equities, 20% bonds portfolio. The fund is down -11% this year despite the equity market being up. Furthermore, the CEF is down -16% since our Sell rating late last year. As predicted the CEF was forced to cut its unsupported dividend, and is now looking to bottom out. From a discount perspective the fund is at the bottom of its historical range, trading with a -15% discount to net asset value. Some of the factors that drove our original Sell rating have been now mitigated, so we do not see the analytics suggesting this should be a Sell at this time. We are therefore moving from Sell to Hold on the name, with significant volatility expected for the fund given its high leverage.

For further details see: