The Liberty All-Star Growth Fund (ASG) aims to attract income-focused investors by offering a substantial 9.14% yield and exposure to growth equities. However, a closer examination reveals a concerning trend of underperformance compared to key benchmarks and its peer group, casting doubt on its long-term viability as an attractive investment option.
Over the past decade, ASG has consistently lagged behind both the S&P 500 Growth Index and the majority of its comparable closed-end funds. This persistent underperformance, despite its high distribution rate, suggests that the fund's strategy or asset allocation may not be effectively capitalizing on market opportunities. The fund's structure includes a 2% quarterly net asset value (NAV) distribution policy. While designed to provide consistent income, this policy carries inherent risks, especially during periods of market downturns or sluggish growth. Such distributions, when not supported by underlying asset appreciation, can lead to what is known as 'destructive payouts,' effectively returning investors' capital rather than generating true earnings, thereby impairing the fund's capital base over time.
Currently, ASG is trading at an 8.56% discount to its NAV, which might appear attractive at first glance. However, this discount needs to be evaluated in the context of the broader market and the performance of its competitors. Several other closed-end funds in the growth equity space, which have demonstrated superior performance metrics, are also available at even deeper discounts. This market reality significantly diminishes the appeal of ASG, as investors have better options for both growth and income, often at a more favorable entry price.
The Liberty All-Star Growth Fund presents a complex scenario for investors. While its high yield is undoubtedly appealing, the fund's historical underperformance and the potential for capital impairment due to its distribution policy warrant caution. When stacked against other closed-end funds that offer stronger track records and more attractive valuations, ASG struggles to make a compelling case for investment. Therefore, for those seeking robust growth and sustainable income, exploring alternative funds within the closed-end fund universe might prove to be a more prudent strategy.
