GAMCO Investors, led by value investor Mario Gabelli, is seeking to place a vice-president from its Gabelli Utility Trust (GUT) on the boards of two Saba Capital Management closed-end funds (CEFs) as part of a strategy to potentially eliminate discounts currently around 13.5% on these funds. This move reflects a notable shift, as GAMCO typically operates as a traditional CEF manager while Saba is known for its activist investing approach.
The Gabelli Utility Trust holds major utility stocks like NextEra Energy (NEE) and Duke Energy (DUK), reporting an 8.8% annualized return over the last ten years. However, it has recently underperformed relative to the State Street Utilities Select Sector SPDR ETF (XLU), which poses risks for investors due to its current high premium of 83% above net asset value (NAV). This premium has fluctuated significantly, raising concerns that it could result in losses even if GUT’s underlying portfolio performs well.
The juxtaposition of GUT’s performance against Saba’s funds highlights a complex scenario: while GUT has demonstrated superior NAV returns, its market performance does not always reflect this. The future effectiveness of GAMCO’s strategy to boost Saba’s funds remains uncertain, given the different investment profiles of GUT and Saba’s more speculative assets.
