GLO: Some Key Points Of Concern

The Clough Global Opportunities Fund (GLO) came up on the service – these are some of the key points discussed.

The fund is 80% in stocks, with the rest in Treasuries and corporate bonds. Leverage is at 32% and current yield is north of 10%. GLO has a negative net investment income yield which sort of makes sense given that fund expenses are typically in excess of the average dividend rate from stocks.

People take a different view of what income means and some are perfectly happy to get 10%, knowing their fund has negative income, but in my view it strains the definition of what income really is. If converting capital gains to distributions is very appealing why not just hold SPY (which would outperform most equity-linked CEFs on an absolute and certainly risk-adjusted basis) and sell a bit each time you want a distribution? This way you also control how and when you generate capital gains events.

Separately, If I compare the performance of the GLO NAV to a portfolio that’s 80% in SPY and 20% in LQD (LQD is an IG corporate ETF and roughly approximates the corps/Treasury GLO allocation) then over the last 5 years I get 14.1% CAGR for GLO NAV and 14% for the SPY/LQD portfolio (3y numbers are similar and 10y numbers GLO NAV is 4.5% below the SPY/LQD portfolio per annum). So what we get is that over the last 5 years GLO NAV performed in line with the SPY/LQD portfolio. But recall that GLO is 32% leveraged which means that it is 118% in stocks and 29% in bonds (versus the 80% SPY / 20% LQD portfolio).

Once we take this into account then GLO NAV is missing an additional 6% per annum – in effect it has underperformed by 6% relative to a 32% leveraged LQD/SPY portfolio. This points to a negative alpha of 6% per annum. We can quibble about the cost of leverage etc etc so the alpha is maybe not minus 6% but minus 4% but you get the idea.

There are some other pet peeves having to do with how it manages leverage but I’ll stop here.

Thanks for reading.

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