Most investors have never heard of
Central Securities Corp. (NYSE:
. The investment firm was launched on Oct. 1, 1929, just weeks
before an epic stock market crash -- but it survived that era and
has made it intact for more than 80 years, albeit in a low-key
Rather than offer a range of mutual funds, CET offers just one
closed-end fund. Yet it's the kind of fund that investors should
always seek out: The stated value of its holdings is worth a lot
more than the actual trading price.
Said another way, this closed-end fund owns $28.20 a share
worth of assets, but trades for less than $24.
CET has a solid portfolio, holding companies such as
Bank of New York Mellon (NYSE:
. The management fee is 0.77%, which is tolerable when you
consider the $4-a-share discount to net asset value (
And this isn't the only fund trading at a greater than 10%
discount to NAV. I've dug through the Morningstar database,
weeding out closed-end funds that hold little appeal, and found a
few more of the discount-to-NAV gems.
|1.Ellsworth Fund (NYSE:
NAV: $10.49 Recent Price: $8.81 Discount to NAV: 16%
This fund offers two forms of value. It trades at a
double-digit discount to NAV, and thanks its focus on
convertible securities, the fund also offers a roughly 3%
According to its sponsor, Dinsmore Capital Management,
the fund has more than half of its money invested in
cash-pay convertible bonds, another 8% in mandatory
convertible issues, 12% in convertible preferred stock,
and the remainder in common stock.
In light of the large gap to NAV, Dinsmore is in the
midst of a buyback program. That makes sense. The best
investment this firm can make these days is in its own
|2.Neuberger Berman Real Estate
NAV: $5.97 Recent Price: $5.03 Discount to NAV: 15.7%
This fund also trades at a 15% discount to NAV, but
offers a more robust 5% dividend yield.
That $0.24-a-share annual payout has been in place for
three straight years, but investors shouldn't anticipate
the solid yield to grow much in coming years. Offsetting
that solid yield is an onerous 2.1% expense ratio. Still,
this is a quality fund, holding stakes in a broad range
of real estate investment trusts.
|3. RMR Real Estate Income Fund
NAV: $23.23 Recent Price: $19.85 Discount to NAV:
Of all the discount-to-NAV funds you'll find, this one
may have the most appeal for dividend-seeking investors.
The payout has been rising at a fast pace, from $0.50 a
share in 2010 to $1.32 a share in 2013, good for a 7.5%
yield. While this fund owns some preferred stocks, common
stocks of real estate firms account for the bulk of the
portfolio, and many of those stocks have been delivering
great dividend growth.
To be sure, the real estate sector may not be able to
deliver such robust dividend growth in the future, but
current payouts appear stable, and with this fund
sporting such a solid gap to NAV, investors have a nice
catalyst in place for further upside.
|4. Nuveen Long/Short Commodity
Total Return Fund (NYSE:
NAV: $18.62 Recent Price: $15.72 Discount to NAV:
This fund generates income by trading options
contracts on commodity futures. Though it has some
exposure to rising or falling commodity prices, the main
focus of the fund is to capture the spreads between
monthly commodity contracts as they get rolled over.
To be sure, profits (and payouts) can fluctuate. The
fund had a long history of paying out $0.155 a share in
dividends every month, though in recent months, that
figure has slipped to $0.135. Still, on an annualized
basis, that works out to be a double-digit yield, and
when coupled with that NAV gap, could pave the way for a
25% total return.
Risks to Consider:
It can take some time for closed-end fund discounts to
narrow, so patience is needed. Moreover, mutual funds such as
these tend to carry higher expense ratios than exchange-traded
Action to Take -->
It is never fully clear why such large gaps develop. But when
they do, the sponsoring firms should seize the initiative by
buying back shares, as is the case at the Ellsworth Fund. That
can help magnify returns when the discount to NAV eventually
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