This CEF Appears Down From Its 1986 Prices, but It’s Hiding a Lovely Secret

The Gabelli Equity Trust launched in August 1986 with an initial NAV of $9.34. Today, shares trade near $5.57. On a chart, that looks like a 40% loss over nearly four decades. Pull up any stock screener, and GAB appears to have destroyed capital since the Reagan administration. That first impression is completely wrong.

What GAB Is Actually Built to Do

Gabelli Equity Trust (NYSE:GAB) is a diversified, closed-end management investment company whose primary investment objective is long-term growth of capital, with income as a secondary objective. It runs a concentrated, value-oriented portfolio with $2.1 billion in total net assets and uses leverage to amplify returns. The top holdings read like a Buffett-adjacent watchlist: Berkshire Hathaway (NYSE:BRK.B | BRK.B Price Prediction), AMETEK (NYSE:AME), American Express (NYSE:AXP), Mastercard (NYSE:MA), and Deere (NYSE:DE).

The return engine has two parts. First, the underlying equity portfolio aims to compound through quality businesses in sectors like financial services (14%), equipment and supplies (9%), and food and beverage (7%). Second, GAB runs a managed distribution policy targeting 10% of average net asset value annually. The fund pays out aggressively from a mix of income, realized capital gains, and return of capital. The current quarterly distribution is $0.15 per share, translating to roughly $0.60 annualized, which puts the yield near 11% at today’s price.

The Adjusted Returns Tell the Real Story

Every dollar of distributions, if reinvested, bought more shares at the depressed nominal price. Over decades, that compounding effect is enormous. GAB’s dividend-adjusted price performance over the past ten years comes in at 209%. Over the same period, Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) returned 218% on an adjusted basis. A closed-end fund with a 1.6% expense ratio and leverage essentially kept pace with one of the most popular dividend ETFs in the world, which charges just 6 basis points.

Over five years, GAB delivered 38% adjusted returns versus SCHD’s 48%. SCHD pulled ahead in that window, but the gap is far narrower than anyone glancing at GAB’s nominal price chart would guess. Since late 1999, GAB’s dividend-adjusted return has reached 664%, capturing the full power of reinvested distributions through two recessions, a financial crisis, and a pandemic.

The Tradeoffs You Accept

1. Return of capital erodes NAV over time. A large portion of GAB’s distributions is classified as a return of capital. The most recent quarterly payout was approximately 91% return of capital. That means the fund is giving you back your own money and calling it a distribution. Over long periods, this suppresses the share price. Reinvesting distributions offsets this, but investors who spend the cash are slowly liquidating their position.
2. Leverage amplifies both directions. GAB is a leveraged fund, which means it borrows to invest. In rising markets, that leverage juices returns. In falling markets, it magnifies losses. During the 2008 crisis, GAB’s nominal share price fell from roughly $9.27 to $3.70 in about 12 months.
3. The expense ratio is steep. At 1.6%, GAB’s expense ratio dwarfs SCHD’s 0.06%. That drag compounds over decades and is one reason GAB trails in shorter windows despite holding quality names.

Where GAB Fits

GAB works as an income sleeve for investors who understand managed distributions and commit to reinvesting. It pairs well alongside a core dividend growth position like SCHD, where the passive ETF handles steady compounding at minimal cost while GAB provides higher current income. The fund is year-to-date down 6% on price while SCHD is up 12%, a reminder that short-term divergence is the norm.

GAB makes sense as a 5% to 10% income allocation for investors who will reinvest every distribution and hold for a decade or more. Anyone spending those payouts without understanding the return-of-capital component is slowly selling their position at a discount.