SHARKWATER TRADING • CLOSED-END FUNDS • INCOME • DISCOUNT MECHANICS
USA: Eleven Years, $7.01 Paid Out, And The Exact Same $6.84 NAV
August 19, 2026
BOTTOM LINE UP FRONT
Liberty All-Star Equity Fund (NYSE: USA) pays approximately 10 percent of net asset value a year, in four quarterly installments of 2.5 percent. Unlike most double digit payers, the money is real: every 2025 distribution was characterized as ordinary dividends and long term capital gains, with zero return of capital in the final tax accounting and $163.4 million designated as long term capital gain dividends.
Here is the number that actually describes the vehicle. NAV per share was $6.84 at the end of 2014 and $6.84 at the end of 2025. Over that stretch the fund distributed roughly $7.01 per share. This thing is not built to compound your share price. It is built to convert a diversified large cap portfolio into quarterly cash and hand the base back to you unchanged in nominal terms.
The only live variable is the discount, and it has moved against holders all year. Shares closed July at $5.81 against a $6.60 NAV, a 12.0 percent discount, the widest reading in at least two years. NAV is up 4.96 percent year to date. The share price is up 0.63 percent. That gap is the whole trade, and the yield has nothing to do with it.
What You Are Actually Buying
USA is a closed end fund that launched in 1986 and, per the fund's own materials, was the first closed end fund to bring multi-management to individual investors. Assets are split roughly equally among five independent institutional managers: three value shops and two growth shops. ALPS Advisors sits above them and has the authority to hire and fire.
The Board used that authority this year. Effective June 15, 2026, Loomis, Sayles & Company, with Aziz Hamzaogullari's team, replaced Sustainable Growth Advisers as one of the five managers. The current lineup is Aristotle, Fiduciary Management and Pzena on value, Loomis Sayles and TCW on growth.
The portfolio itself is the least exotic thing on my watchlist. As of the December 31, 2025 audited annual report: 137 holdings, top ten at 26 percent of the fund against 41 percent for the S&P 500, a price to earnings ratio of 26 times versus 29 times for the index, and a weighted average market cap of $795 billion versus $1.435 trillion. It is a real diversified portfolio in a market that has not paid for diversification in four years.
Where It Stands Right Now
| Metric | Reading |
|---|---|
| NAV per share | $6.60 |
| Market price | $5.81 |
| Premium / (Discount) | -12.0% |
| Net assets | $2,033.2M |
| 2026 YTD return, NAV | +4.96% |
| 2026 YTD return, market price | +0.63% |
| Top 20 holdings | 39.1% of equity portfolio |
| Largest position | NVIDIA, 5.7% |
| Most recent declared distribution | $0.17, ex July 16, payable Aug 31, 2026 |
Source: Liberty All-Star Equity Fund July 2026 Monthly Update, issuer release dated August 14, 2026, all data as of July 31, 2026. Distribution per the issuer release dated July 6, 2026. No live quote is used anywhere in this post.
The History: Four Different Payout Rates In Four Decades
The distribution policy has been in place since 1988 and the marketing describes it as a rate "that approximates historical equity market returns." Read that carefully, because it is an admission. The payout is not funded by income. It is a decision to distribute the expected long run return of the portfolio whether or not the portfolio delivered it that year.
The rate itself has moved four times, and the moves tell you more than the current number does.
| Period | Annual rate | What triggered the change |
|---|---|---|
| 1988 to Q1 2009 | 10% of NAV | Original policy |
| Q2 2009 to Q1 2015 | 6% | Cut in the wreckage of the financial crisis |
| Q2 2015 to Q3 2017 | 8% | Raised to realign with historical equity returns |
| Q4 2017 to present | 10% | Board cited narrowing the discount as a goal |
Source: Table of Distributions, Tax Credits and Rights Offerings, Form N-CSR for the year ended December 31, 2025, footnotes 3, 4 and 5. Q4 2017 rationale from the Fund's third quarter 2017 shareholder report.
Note what happened in 2009. The Board cut the rate by 40 percent at exactly the moment shareholders wanted the cash most. That is the correct decision for a fund that does not want to liquidate itself into a crash, and it is also the precise reason nobody should treat the 10 percent as a contract. It is a policy, and policies get changed by the same eleven people who wrote them.
The dollars follow the same story:
| Year | Distributions per share | Context |
|---|---|---|
| 2000 | $1.42 | Peak year of the original 10% era |
| 2008 | $0.65 | Last full year before the cut |
| 2009 | $0.31 | Rate cut to 6% effective Q2 |
| 2017 | $0.56 | Rate restored to 10% effective Q4 |
| 2021 | $0.81 | Recent peak |
| 2023 | $0.61 | Post-2022 drawdown low |
| 2024 | $0.71 | |
| 2025 | $0.67 | |
| Total since 1987 | $31.67 | More than $4.0 billion paid out |
Source: Form N-CSR for the year ended December 31, 2025, Table of Distributions, Tax Credits and Rights Offerings.
A shareholder collecting $1.42 a share in 2000 collected $0.67 in 2025. The advertised rate never changed by a basis point across most of that span. The rate is a percentage of a number that moves, so it can look permanent while the cash quietly halves. Same mechanic I wrote about in the THTA post, different plumbing.
The Eleven Year Round Trip
Here is the cleanest way to understand what this fund does.
NAV per share entering 2015 was $6.84. NAV per share on December 31, 2025 was $6.84. Over the ten years ending December 2025 the fund distributed $6.50 per share, and 2015 added another $0.51. Call it $7.01 of cash out the door against a base that finished exactly where it started.
That is the machine working as designed, and it deserves to be said plainly before the criticism starts. The fund did not eat its principal. It earned enough to pay out more than 100 percent of its starting NAV over eleven years and still hand back the same nominal base. Plenty of double digit payers cannot say that. THTA gave back $4.33 of a $20 NAV over less than three years to fund a comparable headline rate.
But a flat nominal base over eleven years is a shrinking real one. Every dollar of that $6.84 buys measurably less in 2026 than it did in 2014. For a shareholder taking the distribution in cash, there is no per share compounding at all, by construction. The entire return arrives as a check and then leaves. That is a feature if you need income and a serious problem if you were expecting a growth fund with a nice dividend attached.
The fund's own long run illustration makes the point better than I can. A hypothetical $10,000 buying shares at the December 31, 1987 closing price of $6.00, with all distributions taken in cash, grew to $61,433 by December 31, 2021. The same $10,000 with everything reinvested grew to $410,893. Roughly 5.5 percent annualized against roughly 11.6 percent, over the same thirty four years, in the same fund.
Source: Form N-CSR for the year ended December 31, 2021, Growth of a Hypothetical $10,000 Investment. Annualized rates are my calculation from those endpoints, not fund-reported figures. The reinvestment scenario also assumes the shareholder exercised all primary rights in the Fund's rights offerings, which required additional capital beyond the original $10,000.
Six percentage points a year of difference, driven entirely by whether the cash goes back in. If you own this fund and spend the distribution, you are earning something close to a bond-like number from an all equity portfolio. Know which of those two lines you are on before you buy.
Distribution Quality: The Part That Actually Checks Out
My default assumption with any double digit payer is that a large slice of the money is your own capital coming back with a bow on it. That is not what the filings say here.
The 2025 annual report states that all 2025 distributions consist of ordinary dividends and long term capital gains, and the fund designated $163,414,020 as long term capital gain dividends under Section 852(b)(3) for the year. Zero return of capital in the final tax characterization. On $0.67 per share across roughly 300 million shares, the realized gains genuinely covered the payout.
That is what a 10 percent distribution looks like when the underlying portfolio actually produced 10 percent. It is also why USA is a fundamentally different animal from a fund that manufactures its yield out of an options overlay and a NAV drip.
One flag for 2026. The fund's monthly updates through July 2026 carry standing language that, based on current estimates, a portion of this year's distributions consists of return of capital. Those are Section 19(a) estimates, not final tax character, and 2025's estimates also carried that boilerplate before the year closed clean. Do not read it as a scandal, and do not read it as nothing either. The final answer lands on the 2026 Form 1099-DIV, and the number to watch is whether realized gains cover the payout in a year where NAV total return is running under 5 percent.
Performance: The Benchmark You Pick Does All The Work
| Annualized, periods ended 12/31/2025 | 3 Years | 5 Years | 10 Years |
|---|---|---|---|
| USA, shares valued at NAV | 16.10% | 9.16% | 11.84% |
| USA, shares valued at market price | 14.15% | 8.73% | 12.50% |
| S&P 500 Index | 23.01% | 14.42% | 14.82% |
| Lipper Large-Cap Core Average | 20.76% | 12.71% | 13.46% |
| S&P 500 Equal Weight Index | 12.76% | 10.48% | 11.71% |
| Distributions paid per share | $1.99 | $3.49 | $6.50 |
Source: Form N-CSR for the year ended December 31, 2025, Long-Term Performance Summary. Fund returns are net of expenses and assume reinvestment at actual reinvestment prices and exercise of all primary rights.
Against the cap weighted S&P 500 this fund has been beaten badly and consistently. Three years, five years, ten years, no argument. Against the equal weight version of the same index it beat on three years, lost on five, and edged it on ten. That is the honest comparison for a portfolio whose top ten is 26 percent of assets against an index whose top ten is 41 percent.
Management makes exactly this argument in the annual report, and it is a fair one rather than an excuse. It is also cold comfort. Shareholders do not get to spend a relative return against the benchmark they wish they owned.
The line I keep returning to is the five year: 9.16 percent annualized at NAV, against a policy that distributes 10 percent of NAV every year. A fund that pays out more than it earns is shrinking its own per share base. Reinvesting shareholders partially offset that, because they buy new shares at a discount. Cash-taking shareholders do not. In a decade of average or below average equity returns, that math grinds in one direction only.
It works like a well with a pump set to draw a fixed amount every quarter regardless of rainfall. In wet years the level holds and nobody thinks about it. In dry years the level drops, the pump keeps its setting, and the change only becomes visible when somebody finally lowers a rope and measures.
The Discount Is The Only Variable You Can Actually Trade
The portfolio is a diversified large cap book. You are not going to out-analyze five institutional managers on Capital One and Broadcom. The one thing in this security that is genuinely mispriceable is the spread between what the assets are worth and what the shares cost.
| Period | Premium / (Discount) range | Endpoint |
|---|---|---|
| Calendar 2024 | +0.8% to -5.8% | |
| Calendar 2025 | +1.2% to -10.4% | -8.2% at year end |
| July 31, 2026 | -12.0% |
Source: Form N-CSR for the year ended December 31, 2025, President's Letter, and the July 2026 Monthly Update dated August 14, 2026.
Shares traded at a premium to NAV as recently as calendar 2025. They now sit 12 percent below it. That move is the entire reason NAV is up 4.96 percent this year while the shares are up 0.63 percent. Roughly four points of shareholder return were consumed by sentiment, not by anything in the portfolio.
At a 12.0 percent discount, the arithmetic of the payout changes too. Four quarters at the most recently declared $0.17 is $0.68 a share. Against the $6.60 NAV that is 10.3 percent, right on policy. Against the $5.81 share price it is 11.7 percent. You are buying the payout stream at a discount to the assets generating it.
The $0.68 figure is a run rate, calculated by annualizing the single most recently declared quarterly payment. It is not a forward yield, not a guaranteed figure, and not a fund-published number. The actual next payment will be 2.5 percent of NAV on the Friday before the next declaration.
The Reinvestment Mechanic Nobody Reads
Every distribution release contains the same sentence, and it matters more at a 12 percent discount than it did at a premium. Shares under the reinvestment plan are issued at the lower of NAV or market price on a set date, but not less than 95 percent of market value. For the August 31 payment, that reference date is August 14, 2026.
Work through what that means when the shares trade below NAV. The fund issues new shares at roughly the market price while each share represents a larger amount of NAV. Reinvesting shareholders get more than a dollar of assets for every dollar they forgo, which is a genuine benefit to them. The offset is that issuing shares below NAV dilutes NAV per share for everybody, including the shareholder who elected cash.
Share count grew from 294,774,236 at the June 2025 record date to 301,551,615 at year end 2025, roughly 2.3 percent in six months, with no rights offering since 2021. The wider the discount, the more that machinery works against the cash-taker and for the reinvestor. If you own this fund at a double digit discount and you are taking the cash, you are on the wrong side of your own dividend reinvestment plan.
Reinvestment plan terms per the issuer distribution release dated July 6, 2026. Share counts per the Form N-CSR for the year ended December 31, 2025. The dilution conclusion is my derivation from those stated terms, not a fund-reported metric.
Bull Case
- The distribution is earned, not manufactured. Zero return of capital in the final 2025 tax character, with $163.4 million designated as long term capital gain dividends. That is rare at this payout level.
- The discount is at the wide end of its own recent history. Twelve percent below NAV, in a security that traded at a premium during 2025. You are paying $0.88 for a dollar of NVIDIA, Alphabet, Wells Fargo and Visa.
- The effective payout on market price is 11.7 percent. The discount does not just offer capital upside, it mechanically lifts the cash return on every dollar you commit.
- The portfolio is cheaper and broader than the index. 26 times earnings against 29 times, top ten at 26 percent against 41 percent, 137 names. If breadth improves, relative performance improves without management doing anything clever.
- The advisor fires managers. Loomis Sayles replaced Sustainable Growth Advisers in June 2026 after a stretch of weak relative returns. The oversight layer is not decorative.
- Forty years of operating history and $4.0 billion distributed. The structure has survived 2000, 2008, 2020 and 2022. Very little on my watchlist can say that.
Bear Case
- The payout exceeds the five year return. Ten percent distributed against 9.16 percent annualized at NAV over five years. The fund needs an above average decade just to stand still per share.
- It trails its own primary benchmark. NAV returned 8.80 percent in 2025 against 15.31 percent for the Lipper Large-Cap Core Average. Three, five and ten year figures all trail Lipper and the S&P 500.
- The reinvestment plan dilutes NAV per share at a discount. Shares issued near market price while NAV sits 12 percent higher. Cash-takers absorb that.
- The rate is a policy, not a promise.The Board cut it from 10 percent to 6 percent in 2009 and the annual dollars fell from $0.65 to $0.31. That precedent exists and the same mechanism is still in place.
- The discount is widening, not narrowing. The 2017 rate increase was partly justified as a way to compress the discount. Nine years later the discount is wider than it was then, which is a reasonably direct verdict on that theory.
- Diversification is the position, and it has been the wrong one. If AI leadership stays narrow, a 137 stock portfolio with a $795 billion weighted average market cap keeps losing to the index by construction.
The SharkWater Take
I like USA more than I like most things paying double digits, and I would buy it for a reason that has nothing to do with the yield.
The distribution here is honest. I went looking for the return of capital story and it is not there, at least not in 2025. That closes off my usual line of attack and forces a different question: what do you actually own? You own a diversified large cap portfolio with a rule attached that converts its entire long run return into quarterly cash. Per share, in nominal terms, it has gone nowhere in eleven years and it is not supposed to. The compounding lives entirely in the reinvestment decision, which the fund's own 1987 illustration prices at roughly six percentage points a year.
So the yield is not an edge. Ten percent of NAV distributed from a portfolio earning 9.16 percent over five years is not income, it is a schedule. The edge, if there is one today, is that the market has marked this basket down 12 percent below the value of its contents, in a fund that was trading at a premium last year. That is a spread I can measure, and it is the only thing in this security that is plausibly mispriced.
My read: this is a buy on the discount, held for the discount, with the payout treated as carry while you wait. If the spread closes back toward the 5 to 8 percent range that prevailed through 2024 and early 2025, you collect a mid single digit capital gain on top of a market return, in a name where the downside is a diversified equity portfolio rather than a story. If the spread never closes, you have bought a slightly cheap index proxy that mails you 11.7 percent a year and compounds only if you send it back. That is a fine outcome and a poor one at the same time, depending entirely on what you thought you were buying.
What I would not do is own this instead of bonds, or size it as though the 10 percent were a coupon. It is equity. The NAV fell more than 20 percent in 2022 and the distribution fell with it, because that is exactly what the formula does.
Two things I am watching. First, the fourth quarter Section 19(a) notices and the eventual 2026 Form 1099-DIV, to see whether the return of capital estimates in this year's monthly updates survive into the final tax character. A year with sub-5 percent NAV total return and a 10 percent payout is precisely when that changes. Second, whether the discount stabilizes. It has gone from a premium to negative 12 percent in about eighteen months, and I want to see it stop widening before I believe the mean reversion story.
Execution Notes
- Anchor on the discount, not the price. The relevant number is the spread to NAV, which the fund publishes monthly and daily on its own site. A share price that looks cheap at a 3 percent discount is expensive relative to one that looks dear at 12 percent.
- You can calculate the next distribution before it is announced.The payment is 2.5 percent of NAV at the close on the Friday prior to the declaration date. The 2026 declarations landed January 12, April 6 and July 6, which points to an early October window for the fourth quarter. That cadence is my inference from this year's pattern, not a date the fund has confirmed.
- Make the reinvestment election deliberately. At a wide discount the plan issues shares at roughly market price against a higher NAV. Taking cash while the discount is double digit means paying for someone else's accretion.
- Tax location matters more than usual. The 2025 distributions were ordinary dividends and long term capital gains, so the character is reasonably friendly, but a 10 percent annual distribution generates a taxable event every quarter whether or not you wanted one.
- What invalidates the thesis: the discount widening through the negative 15 percent area without a market-wide closed end fund selloff to explain it, a 2026 tax character that comes back materially return of capital, or a Board move to cut the rate, which would be the 2009 playbook running again.
What I Could Not Verify
Three things, stated plainly rather than papered over. I did not pull the fund's total expense ratio from the December 31, 2025 financial highlights, so no fee figure appears anywhere above. I did not use a live quote: the most recent issuer-published price and NAV in this post are as of July 31, 2026, and the shares have traded for two and a half weeks since. And the Section 19(a) source-of-distribution detail for individual 2026 payments is referenced only through the standing language in the monthly updates, not through the individual notices themselves.
Fair winds and following seas.
Disclaimer: This post is for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Fund data, distribution history, performance figures and tax characterizations are drawn from Liberty All-Star Equity Fund's Form N-CSR for the year ended December 31, 2025, its Form N-CSR for the year ended December 31, 2021, and issuer press releases dated July 6, 2026 and August 14, 2026. NAV, market price and discount figures are as of July 31, 2026 and are stale by the time you read this. Annualized return calculations on the hypothetical $10,000 illustration, the $0.68 distribution run rate, the payout-on-market-price figure and the reinvestment dilution conclusion are the author's derivations from fund disclosures, not fund-reported metrics. Distribution rates are not yields, are not guaranteed, and the Fund has reduced its distribution rate before. Estimated sources of distribution are not final tax character, which is determined on Form 1099-DIV after year end. Closed-end funds frequently trade at discounts to net asset value and those discounts can widen indefinitely. Past performance does not guarantee future results. Verify all figures against primary filings before acting and consult a licensed financial professional regarding your specific situation.
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