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Aggressive Investors May
Find This Fund's 15.8% Yield Appealing |
Published:
May 15,
2007
Liberty All-Star Equity Fund (NYSE: ASG) is a closed-end fund
that invests in a diversified basket of mid-cap U.S.
growth stocks. Holdings include biotechnology firm Genentech (NYSE: DNA),
asset manager Affiliated Managers Group (NYSE: AMG), medical device
maker ResMed (NYSE: RMD), and accounting and financial services
provider Resources Connection (Nasdaq: RECN). In the past 12 months,
the fund has paid out $0.89 per share, giving it an impressive yield
of 15.8%.
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ASG tries to maximize returns by applying a variety of investment
strategies. It does that by using several different firms to manage
the portfolio. Generally, only huge portfolios that run in the
trillions of dollars use such a multi-management strategy, but ASG
is unique in that it seeks to replicate the benefits of applying
diverse strategies to a relatively small $157 million portfolio. The
downside, of course, is an above-average management fee of 1.4% that
takes a bite out of total returns.
The multi-management strategy has had mixed results. The fund's
performance has at times been wildly successful -- generating total
returns of +51% in 2003. At others, however, it has been highly
ineffective -- in 2002, the fund dropped -33%. So far, 2007 is
shaping up to be a pretty good year, with the fund delivering total
returns of nearly +5% in the first three months alone, in line with
the S&P 400 Mid-Cap Index (^MID).
Formed in 1986, ASG has paid regular quarterly dividends for over
two decades. The fund follows a managed distribution policy.
Dividend payments don't fluctuate with the fund's investment income
or capital gains. Instead, investors can count on a steady income
stream representing about 10% of the fund's net asset value per
year, divvied up into quarterly distributions.
Almost half of last year's distributions were long-term capital
gains taxable at the 15% rate, approximately one-third comprised
interest income taxable at ordinary income tax rates, and the
balance was considered return of capital. As such, the fund can be
held in a taxable or tax-deferred account.
Action
To Take ---> ASG is on track to post
solid total returns this year, but given its volatile track record,
we consider the fund an aggressive investment idea.
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Editor's
Note: Carla Pasternak's model portfolios focus exclusively
on investment opportunities with ultra-high yields. In fact, in each
of her monthly High-Yield Investing newsletters she
provides readers with an entire portfolio of stocks, funds and
preferreds that are delivering annual dividend yields of +10% or
more. That's right -- in order to even be considered for
inclusion in this portfolio, an investment
must deliver cash payments of at least 10% per year. Visit
this link to learn more about Carla Pasternak's High-Yield
Investing newsletter.
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Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
On the
educational front, Carla holds both MBA and Ph.D. degrees. When she's
not watching the market, she's teaching business courses at the college
level and managing several million dollars in portfolio assets.
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