Liberty All-Star: Growth and income at a discount

"Our latest 'High-Yield Security of the Month' has defied gravity," says Carla Pasternak, referring to the Liberty All-Star Growth (NYSE: ASG).

In her High Yield Investing, she explains, "With the S&P 500 surrendering much of its gains this year, this fund has delivered market-beating total gains of 10.4% year-to-date and has hiked its dividend during some of the most turbulent times in recent memory."

In her High Yield Investing, she explains, "With the S&P 500 surrendering much of its gains this year, this fund has delivered market-beating total gains of 10.4% year-to-date and has hiked its dividend during some of the most turbulent times in recent memory."

"What makes this fund so attractive? Surely, it's not just the enticing 11.4% yield. In fact, many investors are turning away from ultra-high-yield securities in a flight to safety. Perhaps, then, it's that the fund has hiked its dividend payment not once -- but twice -- in the past 13 months.

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"Or, maybe it's that the fund's adeptly managed portfolio keeps growing, but the shares haven't kept pace. In other words, investors now have an opportunity to scoop up this fund at a steep -9.0% discount to what its assets are really worth.

"Above all, it's the fund's low-risk investment approach that smart money is betting on. Most funds have
one management team running their portfolios, but this one has three -- each focused on a different
segment of the market using a unique investment strategy.

"ASG's diverse portfolio offers exposure to around 150 different companies of all shapes and sizes. And it shies away from risky tactics: the fund doesn't use leverage, write options, or trade in complex derivatives that create additional layers of volatility in an already unpredictable market.

"To give some stability to these dividend payments, the fund pays out approximately 10% of its net asset value in the form of dividends every year. Each quarterly dividend represents around 2.5% of the fund's NAV at the time the dividend is declared.

"For the latest quarter, the distribution of $0.16 per share represented about 2.5% of the fund's $6.59 per share net asset value on October 31st. The last four quarterly payments totaled $0.61 per share, giving the fund a sizeable yield of 11.4%.

"About half of last year's distribution was comprised of long-term capital gains taxed at the reduced 15% rate, about a third was taxed at ordinary income tax rates of up to 35%, and the balance was considered a non-taxable return of capital. Assuming this year's distribution is similar, the fund would be suitable for either an IRA or taxable brokerage account.

"With all its holdings concentrated in U.S. equities, ASG is more vulnerable to the ups and downs of the U.S. markets than a global fund with overseas exposure. Still, the portfolio mix of large, mid-sized, and small growth stocks should help offset some of this single-country risk.

"Since changing investment advisors late last year, the fund's performance has notably improved. Total one-year returns through October 31st of +28% are well ahead of the benchmark's +24% gain. And despite these robust returns, the fund has traded all year at an average discount of -4.3% to the value of its underlying investment portfolio. In other words, the fund is trading at bargain prices.

"Recently, shares of ASG have retreated in tandem with U.S. stocks. We see the near-term pullback as an opportunity to take a stake in a well-rounded portfolio of U.S. growth stocks at a steep discount."