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CEF Specialist

Owning This CEF Isn't a Crime, But It Should Be

Think caveat emptor and Greater Fool Theory of Investing when you think of Cornerstone Progressive Return.

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The three closed-end funds, or CEFs, managed by Cornerstone Advisors have been much maligned in our weekly articles and by CEF investors in general. These funds (Cornerstone Progressive Return (CFP), Cornerstone Strategic Value (CLM), and Cornerstone Total Return (CRF)) are, in our opinion, economically fraudulent funds that offer investors high, unsustainable distribution rates and encourage poor investor behavior that overlooks total return. To be clear, we do not claim that the fund's management is breaking any law or pursuing illegal activities.

While the funds' board of directors can be blamed for supporting unsustainable distribution policies that lead to ever-decreasing amounts of income to investors, the funds' investors themselves could be blamed for bidding the share prices up to absolutely crazy premiums. However, we believe that most investors in these funds do not understand the game they are participating in. From emails we have received from a few such individuals, it is clear that they do not know how to distinguish between total return and distribution rate, that they do not know why their fund's net asset value declines despite the regular distribution, and that they fully participate in their fund's recurrent rights offering.

Mike Taggart does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.