piranka/E+ via Getty Images

piranka/E+ via Getty Images

Lazard Global Total Return & Income Fund (NYSE:LGI ) is a closed-end fund ("CEF") that has been operating since 2004. The vehicle has an interesting structure with an Equity / Debt and FX allocation. The fund parses out its exposure as 69.8% Equities and 28.5% Debt & FX. The vehicle has good long term analytics with a 0.49 Sharpe ratio and a 5-year lookback annualized return exceeding 12%. On the same 5-year lookback period, the fund outperformed both the Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund ( ETO) and the Vanguard Total World Stock ETF ( VT), which can be considered peers in the global equities sector.

Unlike other CEFs LGI tends to trade at a discount to net asset value ("NAV"), which widens out during risk-off bouts. The CEF is currently flat to net asset value but we expect a mean reversion to a discount during the next leg of this bear market. Long term, the fund's current dividend yield is supported, with long term annual total returns exceeding 10%, but the fund is now using a high ROC figure to make up for a poor year in the global equities market. This is ok from our perspective for this vehicle since the CEF purely transforms equity capital gains into dividends. If there are no equity capital gains, then the dividend needs to come from somewhere and that somewhere is ROC. Long term the fund has proven its mettle with the "good years" more than making up for the lost principal during down years like 2022.

We like LGI and its analytics with the fund having proven itself in the global equities space (with a bond component to juice up the yield). We believe we are currently in a bear market rally and expect another leg down here. We are of the opinion that the LGI discount to NAV will widen during the next leg down and there will be a good entry point in the upcoming months into LGI. For a retail holder looking to enter the space wait for the leg down and discount. For a long-term holder, LGI is a solid Hold having proven itself over and over again as a very robust producer.

Premium/Discount to NAV: -0.3%

Annualized Total Return (5Y lookback): 12.2%

The fund holds a mix of Equities and Debt/FX:

On the equities side the vehicle has a wide geographic dispersion with a U.S. concentration:

In terms of top holdings one can find global technology companies as part of the top portfolio names:

As part of the top holdings but not the Technology cohort, Iqvia (IQV) is an American pharma multinational, while Wolters Kluwer is a Dutch global provider of professional information and services for clinicians, nurses, accountants and lawyers.

From a sectoral standpoint the CEF is overweight Information Technology and the Consumer Discretionary sectors:

The fund does seem to take concentrated positions in a number of sectors, with the top 5 sectors accounting for almost 80% of the fund.

On the currency and debt side the fund takes significant FX views via forwards:

It has been an exciting time in the currencies markets with dollar outperforming and volatility having risen on the back of the rising rates environment. The fund has proven its mettle in the past in this space, but it is worth noting that it is one of the few global funds that also actively trades the FX component of a global allocation.

We dug into the Annual Report (as of Dec 2021) to have a gander at the currency pairs and exposures run by the fund:

We can see that the fund had exposure to Eastern European currencies and Asian FX as of the close of business last year. From a notional standpoint we can see the dollar leg has an aggregate $80mm notional piece versus a number of other currencies.

The fund is down only -8.9% year to date, outperforming both the Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund and the Vanguard Total World Stock ETF:

On a 5-year basis LGI outperforms:

We can see from the above graph that as of now LGI outperforms the competition narrowly. ETO recently experienced a serious price collapse when its premium to NAV narrowed substantially thus putting LGI as the winner in terms of total return on a 5-year lookback.

On a 10-year time horizon LGI is second in performance after ETO but still beats VT quite handily:

The fund exposes very robust long term total returns, which come in annualized at over 10%:

The fund has historically traded at discounts to NAV:

We can see from the above table that prior to 2021 the fund has averaged discounts to NAV of -10%. Just like other CEFs the discount to NAV widens out during bouts of risk-off:

We can see from the above 2022 table that during January/February the discount was small, followed by a substantial widening when the market sold-off.

The fund currently has a high return of capital component:

We can see from the July 2022 Section 19 Notice that the fiscal year to date distribution has a high ROC component. This is due to the fact that the global equities markets have been down this year and the fund targets a certain dividend yield. When the markets are down that dividend is going to come from ROC. We are not concerned here because this is normal during a down year in equities. We would be concerned if the market was up but the fund was using a high ROC figure. The vehicle has proven throughout time to be stable from a NAV perspective:

What does this mean? It means that in the "good years" the fund makes up for the ROC it is forced to distribute during the down years in the global equities markets. A CEF that uses ROC to overdistribute (i.e. pay dividends which ultimately it does not produce) will have a historic downward sloping NAV. Why? Because it is returning you your own money and there is less and less left in the pot. That is why you see these funds eventually doing rights offerings or merging into other funds because the AUM becomes smaller and smaller each year.

LGI is a global equities CEF. The fund also has a debt / FX forwards slice of 28.5% of the exposure. The vehicle has extremely robust long term annualized total returns which exceed 10% with a stable NAV performance. The fund has outperformed better known names in the sector such as the Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund and the Vanguard Total World Stock ETF. LGI generally trades at a discount to NAV, and while currently flat to net asset value, a mean-reversion is to be expected. For a retail holder looking to enter the space wait for the next leg down and widening of the discount. For a long term holder LGI is a solid Hold having proven itself over and over again as a very robust producer.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.