It has been thirty one months since I first covered Alpine Total Dynamic Dividend Fund (AOD) and Alpine Global Dynamic Dividend Fund (AGD). Within days the 30%+ market premiums over Net Asset Value ("NAV") had fully collapsed. Still, the impetus was not my article.
Regardless who anticipated it, the impetus was a monstrous distribution cut. In 2010 the monthly distribution (technically "earned" by virtue of a hyper-velocity Dividend Capture Rotation Strategy) had previously created investor illusions as to expected earnings. Technically "earned" or not, the funds' Boards started dramatically cutting its monthly distribution in mid 2010.
Having closed at a 31.63% premium on June 21st 2010, AOD closed at more than a 4% discount just four calendar days later. AGD went from a 38.43% premium on June 18th 2010 to a discount over ten calendar days.
Perhaps the Board of Trustees at Alpine remembers how quickly the market reacted to its announcements some thirty one months ago. This year, they picked a Friday evening preceding a Monday holiday to announce another major distribution cut. For better or worse, the market could not react until Tuesday. AOD traded down about 7% and AGD nearly 13% in what was an otherwise strong market.
I have no position in AOD or AGD. Let me be clear. Even when I had a (less than 1000 share) short positions back in 2010 in an account licensed for Covestors modeling, my heartfelt sympathy went out to the shareholders who were not savvy enough to avoid the Alpine cliff. My assessment was never meant to be insensitive toward shareholders. I did not design what was happening at Alpine and I would have liked to have prevented it if I'd been there or otherwise in a position enabled to do so. I have nothing to do with Alpine though, and I can assure you Alpine doesn't heed my insights. I simply observed and anticipated what was likely to happen.
For those who got hammered then or re-hammered today, let me make a couple of observations that may be subjects about which to confer with their financial advisors.
- AOD and AGD are both designed to buy securities before they trade ex-dividend and sell them after. I have never observed a comment or observation which suggested such a exercise should create superior returns. The tactic does of course stimulate taxable events for many shareholders.
- AOD is nearly a billion dollar fund. That is large by Closed End Fund standards. In contrast, AGD is less than 150 million dollars in size. Market price is determined by where market supply and market demand find equilibrium at any moment in time. It certainly did not surprise me when the larger AOD suffered greater market weakness than AGD in the nineteen months that followed the 2010 distribution cuts.
- I would be somewhat surprised if savvy Closed End Fund investors were long term buyers of AOD or AGD in increments much bigger than $2000 in the near term, even at a discount. Both present displaced shareholder bases, neither appears to be anything special in terms of portfolio management, and neither appears efficient for taxable accounts.
On point three, I should note it surprised me when Thomas J. Herzfeld Advisors, Inc ("Herzfeld") clamored to recommend AOD in its fee based monthly newsletter "The Investor's Guide to Closed-End Funds" after its first big distribution cut back in 2010. Herzfeld is a 1984 established investment management firm devoted to research, analysis, and investment in closed-end funds. The firm provides discretionary account management as well as consulting services to clients on all subjects related to the closed-end fund industry. In addition, the firm calculates and publishes The Herzfeld Closed-End Average, an index of price performance and premium/discount levels of domestic U.S. equity closed-end funds.
I saw Herzfeld's assessment of Alpine far too narrow but hey, different opinions make for markets. In fairness to Herzfeld, the Alpine Funds then presented as an apparent regression to mean valuation play. (ie: A fund which historically averaged a premium valuation seen likely to return to a premium)
What I argue Herzfeld missed is that AOD was an oversized fund which had just alienated its entire shareholder base. Further, AOD and AGD appear to have no intrinsic competitive advantage to create unique economic value for their shareholders. Financially engineering taxable distributions is a fools game.
I still see AOD as a permanently burst bubble and it seems any relative valuation bounce along the way has been that of a dead cat variety.
I should note anticipated limitations of my adverse attitude toward AOD or AGD today.
- Would it surprise me if either presents trade opportunities? No. There are likely to be some peaks and valleys, even if I doubt we'll ever approach the majestic Alpine's premium valuation peaks.
- Would it surprise me if either eventually present as relevant candidates for Closed End Fund Activism? No, but that would likely take a long time. The price would have to get far worse before the apparent risk/return for Activism competent investors would appear attractive enough to justify large scale entry.
Additional disclosure: Dan Plettner is not a Registered Investment Advisor. Dan Licenses his personal trading data to Covestor, Ltd ("Covestor"). Covestor is a Registered Investment Advisor with portfolios heavily comprised of Closed End Funds based on following Dan Plettner's trade data.