By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel consensus is neutral, with the key takeaway being that while the Liberty All-Star Equity Fund (USA) offers an attractive yield, investors should be cautious due to the fund's reliance on return of capital, leverage, and the risk of NAV erosion from its managed distribution policy and heavy exposure to mega-cap tech.
Risk: NAV erosion due to the fund's managed distribution policy and potential disappointment in earnings from tech mega-caps
Opportunity: Potential discount narrowing if earnings growth is sustained and yield-chasing demand increases
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
As America celebrates its 250th, there's something happening inside its economy that's not getting enough attention.
A quiet boom.
It's one more thing worth celebrating this month--and we're going to do that. We're also going to get set for the next leg of America's low-key growth run with a closed-end fund (CEF) yielding north 11.6%.
The chart below, which The Economist published two years ago, nicely sums up the wealth-building power of the US economy over the long haul.
The key piece of info here is on the left side of this chart. Here, we can see that over the last century, each generation of Americans has started its working career earning more than previous ones. And, yes, this data is inflation-adjusted.
No matter how you slice it, America is getting wealthier, generation by generation.
I know that this kind of optimism feels a bit, well, off these days, going by the negativity we read in the press. But the facts are clear. And we can bring this up to the present day by looking at Americans' disposable income: It's done nothing but march higher.
Here we see the amount of inflation-adjusted disposable income each worker has, on average. Right now, it's around $11,072 per person per year, or double what it was 40 years ago.
That's striking. And despite the gloom hanging over the job market these days, the average person's employment prospects still look good, with the jobless rate at 4.2%.
Nonetheless, the disconnect between these bullish numbers and consumers' dour mood is real. You can clearly see it below:
The blue line shows disposable income steadily rising, with things going temporarily haywire during the pandemic, when disposable income suddenly skyrocketed.
Disposable income has since retreated to the normal upward trendline, but no matter. Consumer sentiment (the green line) has slumped, and remains in the dumps years after the last lockdowns ended. Perhaps the memory of all that extra money during COVID is at play here.
In any case, one thing that certainly is true is that inflation is higher than it was in the 2010s--so much so that economists have accepted that we're probably going to have 3% inflation on average instead of 2% for the long haul. But the fact remains: Americans are still earning more and have more to spend, and this trend has moved steadily along for a hundred years.
An 11.6% Dividend With a "Buy American" Kicker
What America has accomplished over the last 250 years is incredible, especially since we've now seen an entire century of growing wealth as a result.
Which is where the Liberty All-Star Equity Fund (USA) comes in--and not only for its patriotic ticker. In one go, the CEF gives us exposure to leading US firms like NVIDIA (NVDA), Microsoft (MSFT), Alphabet (GOOGL) and Amazon.com (AMZN).
But it's not all about tech: Capital One Financial (COF), Visa (V) and health insurer Humana (HUM) show up among its top-10 holdings, too. USA takes its gains on this portfolio and "converts" them into that 11.6% dividend. And as you'd expect in a rising market, that payout has been growing.
USA's Big--and Rising--Payout
The fund fuels its dividend by aiming to return 10% of its net asset value (NAV, or the value of its underlying portfolio) as payouts every year. That's why the line above tends to fluctuate over time.
That upward trend in the dividend is, as a result, tied to the fund's performance: Over the last decade, USA's market price-based total return has more than tripled (in purple below), with its total-return NAV (in orange) not far behind.
USA Marches Higher (No Matter How You Measure It)
At the right side of the chart above, you'll see that the fund's total NAV return is starting to reel in its market price-based return. That's resulted in a discount to NAV (the main valuation indicator among CEFs) of 12.9%.
That's a level not seen since 2017. And it's completely out of step with the strength of this fund's performance over time--not to mention its rising payout:
USA's Back-to-2017 Sale
The power of USA's high dividend, over time, should not be underestimated, either. The chart below tells the tale of two hypothetical investors: one who bought $100K of USA a decade ago and reinvested their payouts (in orange) and one who used the fund's dividends to pay their bills, relying solely on USA's price gains for growth.
Both tales are happy ones:
USA Is a Long-Term Winner, No Matter What You Do With the Dividends
As you can see, an investor who bought USA a decade ago and used the fund's dividend to pay for living expenses would have still seen their $100,000 initial investment rise to $116,230. Not bad! And our investor who reinvested their payouts would now have a holding worth $317,610.
It just goes to show that a CEF like USA is a smart way to ride along with America's long-term growth--whether we need the income generated by that growth or not.
4 More "Star-Spangled" 10%+ Dividends as America Turns 250
This quiet boom isn't just about the American economy as a whole. It's fueled by several "mini-booms" happening in specific sectors.
Like pharma, where AI is slashing drug-development times, setting up billions more in sales for drugmakers.
Or on the factory floor, where AI-powered robots can make their own decisions, in real time, slashing costs and boosting product quality.
The best news for us is that CEFs give us a way to tap these "mini-booms" while grabbing big income streams at the same time.
I've got 4 such funds on my radar now. These 4 "all-American" picks yield 10% on average and, like USA, they're all overlooked bargains (for now!).
As the media narrative (inevitably) flips from gloom to growth, these discounts will vanish, and the biggest gains will be gone.
That's why, if we want to avoid leaving money on the table here (and we do!), we need to make our move now. Click here to learn more--and to get a free Special Report naming the four 10%-paying funds that get you in on the ground floor.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"The fund's high yield is a forced distribution of NAV rather than organic income, making it a tax-inefficient vehicle for long-term growth compared to lower-cost index alternatives."
The Liberty All-Star Equity Fund (USA) is being marketed as a 'patriotic' yield play, but investors must distinguish between dividend yield and total return. USA’s policy of distributing 10% of NAV annually is a return of capital mechanism, not necessarily a reflection of underlying portfolio earnings. While the 12.9% discount to NAV is statistically attractive compared to its 2017 baseline, it reflects a structural reality: CEFs often trade at discounts because investors prefer tax-efficient growth over forced distributions that trigger immediate tax events. The fund's heavy exposure to mega-cap tech (NVDA, MSFT) means you are essentially paying a management fee to hold an S&P 500 proxy that forces you to realize gains.
If the fund's NAV continues to appreciate alongside the broader tech sector, the narrowing of the discount could provide a double-alpha effect of capital appreciation plus yield, potentially outperforming a standard low-cost index ETF.
"N/A"
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"USA's valuation discount is real but not destiny; it reflects both opportunity and latent duration risk if rate expectations reset higher."
USA's 12.9% NAV discount is genuinely rare, but the article conflates two separate stories: long-term US wealth growth (true, documented) with CEF valuation (timing-dependent, not destiny). The 11.6% yield is real only if NAV doesn't compress further—a 12.9% discount can widen if equity multiples contract or rate expectations shift. The article cherry-picks a decade of exceptional returns and ignores that CEF discounts often persist for structural reasons: illiquidity, leverage costs, or market-wide repricing of yield vehicles. The 'quiet boom' framing obscures that we're 22 months into a rate-cut cycle that hasn't materialized, and long-duration assets like CEFs are vulnerable if inflation stays sticky above 3%.
If the Fed stays higher-for-longer and real rates remain elevated, that 12.9% discount could reflect rational pricing—not a bargain. CEF discounts that 'haven't been seen since 2017' might be signaling something 2017 investors missed.
"The 11.6% yield is unlikely to be sustainable in a rising-rate, slower-growth environment because it relies heavily on return of capital and leverage, not durable cash earnings."
The piece touts an 11.6% yield from Liberty All-Star Equity Fund (USA) and ties it to broad US wealth trends, but the optimism masks real mechanics: many CEF distributions are funded by return of capital and leverage, not pure cash earnings. With a 12.9% NAV discount, a sizable portion of the apparent upside hinges on discount narrowing rather than underlying earnings growth. The fund’s tech-heavy top holdings imply concentration risk if mega-cap tech falters or rates stay high. Promotional framing omits risks around sustainability of distributions, leverage, liquidity, and potential NAV declines in a cyclical downturn.
Bullish counter: USA’s payouts are supported by solid cash flows from mega-cap tech and financials, and a persistent NAV discount provides a built-in tailwind; if the market holds up and the discount tightens, total return could be attractive even with a high yield.
"The fund's 10% distribution policy creates a structural 'buy high, sell low' trap that accelerates NAV erosion during market downturns."
Claude is right to highlight the rate-cut delay, but the panel is missing the primary risk: the 'managed distribution' policy. When NAV drops, the fund is forced to sell assets to maintain the 10% payout, effectively locking in losses during market volatility. This isn't just about valuation multiples or tax efficiency; it is a structural 'buy high, sell low' mechanism that destroys long-term compounding. The discount isn't a bargain—it's a warning about the fund's internal capital erosion.
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"Managed distributions destroy value only if underlying earnings can't sustain payouts; the mechanism itself isn't the culprit."
Gemini's 'buy high, sell low' critique of managed distributions is mechanically sound, but overstated. USA's 10% NAV payout isn't forced asset liquidation every quarter—it's an annual policy. The real erosion risk depends on whether underlying holdings generate sufficient earnings to cover it. If tech mega-caps (NVDA, MSFT) sustain 15%+ earnings growth, distributions stay funded without NAV destruction. The discount widens only if earnings disappoint, not because of the policy itself. That's a portfolio risk, not a structural flaw.
"Leverage and liquidity dynamics can cause NAV erosion and forced sales, threatening long-term compounding even if the 12.9% discount narrows."
Responding to Gemini: the 'buy high, sell low' worry rests on a plausible outcome, but the overlooked risk is leverage and liquidity costs eroding earnings. Even with an annual 10% NAV payout funded by cash flows, a drawdown or wider credit spreads can raise financing costs or force asset sales, accelerating NAV erosion beyond a simple discount narrative. If the discount narrows solely from yield-chasing demand, compounding could still be damaged.
The panel consensus is neutral, with the key takeaway being that while the Liberty All-Star Equity Fund (USA) offers an attractive yield, investors should be cautious due to the fund's reliance on return of capital, leverage, and the risk of NAV erosion from its managed distribution policy and heavy exposure to mega-cap tech.
Potential discount narrowing if earnings growth is sustained and yield-chasing demand increases
NAV erosion due to the fund's managed distribution policy and potential disappointment in earnings from tech mega-caps