2024-01-12 09:15:00 ET
Summary
- Cornerstone Total Return Fund is a diversified, closed-end management investment company that offers value, growth, and income.
- CRF yields 17.5% and pays monthly.
- The fund has a focus on the tech sector, with overweight exposure in consumer cyclical and underweight exposure in financials.
Looking for value, growth and income? Cornerstone Total Return Fund ( CRF ) is a diversified closed-end management investment company which features all three of those elements.
Fund Profile:
The Fund's investment objective is capital appreciation with current income as a secondary objective. the Fund's investment adviser uses a balanced approach, including "value" and "growth" investing by seeking out companies at reasonable prices, without regard to sector or industry, which demonstrate favorable long-term growth characteristics. Valuation and growth characteristics may be considered for purposes of selecting potential investment securities. (CRF site)
CRF has ~$676M in net assets, 306 holdings and average daily volume of 922K. Its expense ratio is 1.15%, lower than other CEFs we've covered, as is its leverage of 9.50%. (Some CEFs have leverage ratios of well over 30%.)
As of 9/30/23, CRF's biggest sector exposure remained tech, which, at ~27%, was a bit higher than tech's ~25% weighting in the market. CRF was underweight in Financials, with 12.3% exposure vs. their 15% market weighting.
It had a large overweight exposure in Consumer Cyclical, at ~24%, vs. the 11% market weight. There were very small exposures to real estate and basic materials.
Dividends:
CRF's management declared a $.1037/share monthly distribution for January-March 2024. While this is lower than the previous $.1137 monthly payouts, it's consistent with the distribution percentage of 21% of the net asset value of the fund.
CRF's managed distribution plan is adjusted through an annual resetting of the monthly distribution amount per share based on the fund's net asset value on the last business day in October.
At its 1/11/24 price of $7.10, CRF yielded a whopping 17.53%. It goes ex-dividend next month on 2/14/24, with a 2/29/24 pay date; and has the same ex- and pay dates in March.
CRF also has a share repurchase program.
Taxes:
For the year ended 12/31/22, 88% of CRF's distributions came from return of capital. The ROC amount decreased to ~61% in Q1-2 2023.
A positive factor for ROC is that it will defer your tax bite until you sell. However, if and when you sell, it's time to pay the piper, as ROC will have decreased your tax basis.
Holdings:
As of 9/30/23, CRF's top 10 holdings were the biggest market caps in the market, with the exception of the Adams CEF, and accounted for ~28% of its portfolio.
Performance:
CRF has ranged from $6.05 to $8.56 over the past year. It peaked in late August, and dropped from ~$8.00 to $6.09 in October, roughly following the S&P's decline, before rising to above $7.00 in November. Its distribution adjustment announcement came out on Nov. 3.
CRF trailed the S&P 500 over the past month, quarter, and year, on a price and total return basis. While it decreased by 8.23% in price over the past year, its outsized dividend resulted in a ~9.3% total return. It has outperformed so far in 2024.
While its top 10 holdings only accounted for 28% of its portfolio, we were curious to see how those top 10 performed compared to CRF.
Over the past year, many of CRF's top 10 holdings have outperformed the S&P and CRF by very wide margins. While Berkshire Hathaway (BRK-B) and Walmart ( WMT ) trailed the S&P, they both outperformed CRF significantly.
So far in 2024, AAPL, TSLA, and ADX are lagging CRF and the S&P.
Looking back further - CRF outperformed the Morningstar US CEF US Equity category in 2023, 2020-2021, and 2017, and is outperforming so far in 2024:
Valuations:
Buying CEFs at deeper than historic discounts to NAV can be a useful strategy, due to mean reversion. CEF daily valuations are calculated at the end of each trading day.
CRF has frequently traded at a premium to its net asset value during the past several years - it has a five-year average price/NAV of more than 19%. That premium rose to nearly 26% over the past three years, and was 17.7% over the past year.
However, CRF has been trading at a lower premium this week - at its 1/9/24 $7.16 closing price, it was 11.88% above its $6.40 NAV/share.
Parting Thoughts:
We advise putting CRF on your watchlist. We rate it a Buy if it gets closer to a lower, 10% premium to NAV. Looking at the premium/discount chart above shows that investors who bought CRF at a ~10% premium since Q3 '20 have done alright on a price basis, in addition to receiving very attractive monthly distributions.
All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.
For further details see:
CRF: 17% Yield, Monthly Payer, Close To Buy Point