A lot of it has to do with relative valuations to other CEFs. EOI's valuation at a -10.5% discount with superior short term NAV performance makes it much more attractive than most any other equity CEF. And as another reader mentioned, I've been recommending EOI for some time now.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Wow...after all this you think I was arguing the total distribution amount for DPO? Your website and Yahoo! Finance are essentially accurate for DPO. Its the NAV distributions (XDPOX) that are omitted and since both the market price (DPO) & NAV (XDPOX) of ANY CEF are reduced by each distribution, its the NAV total returns are significantly understated!
The reason why I am so focused on the NAV is because THAT is your true financial interest in the fund. I could care less about the market price of DPO except in its relationship to its NAV. The market price is determined by mostly unsophisticated investors so I don't give it a lot of credibility. But it is where you get your opportunities to buy.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
I'm short a bit DIA (actually long DOG, which is the inverse) as a hedge. I am nervous about how far this market has come and it is difficult to find undervalued equity CEFs right now. DPO I like at a -7% to -9% discount but added at a -6% discount because there's not much out there besides the Eaton Vance option-income funds that I would consider undervalued. I already own a lot of the EV funds and there's a lot of overlap in their top holdings so I really have to look elsewhere. At least with DPO, I know what to expect with its NAV based on the DJIA but if the market starts to correct, DPD would probably be better to own with no leverage. Hence why I am hedged a bit but I wouldn't hedge more than 1/3 of any long position in DPO and be prepared to add to the position if it got to a wider discount.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Your website DOES NOT include all distributions for NAV prices of CEFs when it gives annualized returns. End of story. If you can't admit to that then all you're going to do is argue with me. Good luck to you.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Because distributions reduce both the market price and the NAV each time they go ex-dividend. You have to add them back to get the total return.
DPO is up 108% ($11.84 current price + $4.57 total distributions - $7.90 price on 3/31/09 divided by $7.90) vs. DIA up 109% (146.88 + $11.87 total dividends - 75.84 price on 3/31/09 divided by 75.84). All distributions are simply added back. If you reinvested dividends, DPO actually beats DIA from the 1st qtr '09 to today.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Look, if you're going to question what I say with condescending statements like "Uh, yes it does" then you better have something more to back it up than just quoting your website with "The total return includes stock price appreciation and dividends."
Your website DOESN'T include total distributions for DPO's NAV or DPD's NAV or any other CEF's NAV for that matter and let me tell you why. Because it uses the same data source as Yahoo! Finance and many other financial websites. Go to Yahoo! Finance, plug in DPO or any other CEF. Go to Historical Prices and hit Dividends Only. There you'll see all the distributions listed for the stated period of time. Now put in XDPOX or any other CEF's NAV and you'll see none (actually just started to include them for 2013 but the adjusted close will be more and more understating performance the farther you go back). So you really don't know how DPO's or DPD's NAV has performed against DIA on a total return basis except from inception now do you? Would you be surprised to learn that DPO's NAV has essentially matched if not beaten DIA on a 1-year, 3-year and from the market lows since March 2009?
Now, you do make one good point indirectly. These are not necessarily funds you want to buy and hold, and certainly not from inception. You have to wait until the discount widens during pullbacks and sell during uptrends when and if they get to premiums. If you had bought DPO in the fall of 2008 when it was at a -15% discount and sold a year later when it was at a 30% premium, you would have had a total return FAR greater than DIA while being paid a 20% annualized yield at the time. Granted, such a situation may never occur again but you need to realize that DPO, and even DPD, will be more volatile than DIA and give you more opportunities. On the other hand, their NAV's and especially DPD's NAV will be LESS volatile than DIA and will hold up better than DIA in a down market. Even DPD's market price shows you that in your website.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
You have to plug back distributions to DPO and DPD to make total return comparisons to DIA. When you do that, the comparisons are much more similar. But even then, you are using the market price of the fund and not the NAV price. The NAV price is the true performance of the fund, whereas the market price is subject to investor sentiment and can rise to premiums over NAVs or fall to discounts based on fear & greed.
DPO is slightly leveraged whereas DPD is not. Otherwise, they are the same. M* probably has DPO at 4-stars because of that leverage and the higher volatility compared to its benchmark. BTW, as a non-leveraged option-income fund, DPD will hold up far better than DIA in a bear market. Go ahead and plug DPD into the link below from mjs_28s during the bear market of Sep '07-Mar '09.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
First of all, I was writing about DPO, not DPD. But fine, let's use DPD. I plug DPD into your link above and use the April, 2005 to April, 2013 and DPD had an annualized return of 5.5% vs. DIA at 6.8%. So I don't know where you are getting your -25% to -30% over the life of the fund.
Second, you're using the market price of the fund, NOT the NAV. When a fund goes public, its market price starts 5% over the NAV anyway. I would never recommend anyone buy a CEF at an IPO price because it immediately drops to the NAV price and usually doesn't stop there. If you want to compare the true apples to apples performance, use the NAV of DPO & DPD compared to DIA, but your link won't include distributions for the NAV prices so it doesn't work. I, however, do include distributions so I know how they have performed. BTW, the whole reason you buy CEFs at discounts is because their market prices may not reflect the value or performance of their NAVs. Plus, you get a windfall yield buying a CEF at a discount.
Third, I am well aware of distribution cuts for all the option-income funds. They all had overly generous NAV yields of 12% or higher (DPO's was 20%!) after the bear market and the ensuing bull market did not allow their NAVs to recover nearly as quickly. Thus, they all cut distributions to get their NAV yields down to more manageable 7% to 9% NAV yields and since then, their NAVs have done much better. All of this I have written many times in articles over the past couple years if you care to read.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Your answers are in the article. DPO's NII was $5.2 million and it paid out $24.3 million so its UNII was actually -$0.69/share in 2012 based on 27.857 million shares outstanding. But DPO doesn't rely on NII to pay its distributions. It relies on option premium, which is not included in NII or UNII.
PIMCO Global StocksPLUS & Income Fund PGP: A High Yield Dividend Option, Is It Sustainable? [View article]
The implication that PGP is a stock fund is wrong. It owns NO stocks though it has the option to own stocks. It's a fixed-income fund which owns mostly mortgage backed, corporate bond and US Govt. agency securities. However, PGP does get equity exposure through its large positions in S&P e-mini futures.
PGP is also a Closed-End fund and has the highest premium valuation of ANY CEF. For a fund that has NEVER cut its distribution and will have one of the most volatile NAVs because of its high use of leverage and its S&P futures contracts, I suppose a 54% market price premium over its NAV should not be unexpected considering PIMCO's prowess at fixed-income investing. Allianz does not manage PGP even though PGP is under the AGIC sponsor name.
Nontheless, investors need to realize PGP has to support a 15.3% NAV yield to receive only a 10% market yield. A 15.3% NAV yield is a huge red flag and it will be not be easy for PGP to maintain that going forward. All you have to do is realize that PGP is paying the same $2.20/share annual distribution with a $14.35 NAV as it did when it went public with a $23.83 NAV.
As long as the S&P and bond markets keep going up, PGP can maintain its distribution but frankly, there are much better risk/reward CEFs that are at wide discounts and pay even higher monthly yields.
Equity CEFs: Is It Time To Overweight The Option Income Funds? [View article]
$13.24 EOI's current NAV $12.35 EOI's NAV end of 2012 $11.93 EOI's NAV end of 2011
Looks to me as though EOI has been growing its NAV more recently, and that's including deductions for distributions. Yes, go back further and virtually all option-income funds were losing NAV after paying distributions, the true definition of destructive ROC. Much of that was due to the fund's having NAV yields much higher than they could support, some 12%+. I wrote many articles on the subject pointing out that distribution cuts were the proper course of action and in the long run, would help the funds grow their NAVs. Eaton Vance and Nuveen in fact, were the first to get their fund's NAV yields down to more manageable 7% to 9% NAV yields starting in early 2010, while ING and BlackRock have been doing it more recently.
EOI's NAV yield is now a much more manageable 7.8% but because of its wide discount, investors can pick up almost a 9% market yield. EOI's performance has dramatically improved too, both at NAV and market price, up 22% and 28% respectively since 2011.
Thank you. Since I wrote an article last week in direct contrast to yours, I feel compelled to make a couple comments. The problem I have with the 3-year look back period is that it includes an extended period of time (some longer than others) in which these funds were paying out excessively high NAV yields (many at 12%+) and were seriously eroding their NAVs, particularly the global funds. So yes, they were not able to cover their distributions back then. However, all of these funds have since cut their distributions to much more attainable 7% to 9% NAV yields so they will start to look better and better as they put their high NAV yield destructive periods in 2010-2011 behind them.
Second, I have a question regarding the risk/reward measure of these funds and whether you are using the market prices or NAV prices in your analysis? I believe you are using the market prices since NFJ would not be that highly rated over the past 3-years if you were using its NAV. NFJ raised its distribution substantially in late 2010 which is why its market price has done so well but its NAV has been nothing special over the past 3-years.
So if you're using the market prices to compare risk adjusted returns, then that is not really apples to apples with the S&P 500. If you performed a risk adjusted analysis with the NAVs of these funds, not only will that show much less volatility compared to their market prices but I believe they will show a much better risk/reward when compared to the S&P 500. Of course, you can't buy the NAV like you can an ETF but then you can't buy an ETF at a double digit discount either!
Equity CEFs: Is It Time To Overweight The Option Income Funds? [View article]
A lot of it depends on where you start from. 1-year from 1st qtr 2013 going back, ETV's NAV is up only 8.0%, 3-years and the NAV is up 28.8% & 5-year, up 27.7%. All simply adding back distributions, i.e. no re-investing. So yes, if you look at those periods, only the 3-year has ETV's NAV essentially covered its distributions. Start from another qtr however, say 3rd qtr 2012, and ETV's NAV easily covers the 1-year and 3-year periods though certainly not a 5-year period since it includes the financial crisis of 2008.
What's most important if we go into a flat to down market period, which is what I am suggesting, is if ETV's option premium can cover its distributions. At 96% coverage and up to 2% or so out-of the-money options, ETV easily accomplishes that if all the option premium were realized. That won't happen, since some months the fund will lose on its options, but the fact that ETV can easily cover its distributions with its option premium is all I'm concerned with. ETV is very defensive and as you can see, will barely cover its distribution in a strong up market. Its designed for a flat to volatile up and down market and I believe that is what we are going into. But even if I'm wrong and the bull market continues, ETV will still be fine.
Equity CEFs: Is It Time To Overweight The Option Income Funds? [View article]
No K-1's. Just be sure you know what your cost basis is since you can get a surprise on your 1099's if you sell a fund that includes a lot of ROC and you don't adjust your cost basis. Other than that, pretty straightforward.
Back Up The Truck On EOI [View instapost]
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
The reason why I am so focused on the NAV is because THAT is your true financial interest in the fund. I could care less about the market price of DPO except in its relationship to its NAV. The market price is determined by mostly unsophisticated investors so I don't give it a lot of credibility. But it is where you get your opportunities to buy.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
DPO is up 108% ($11.84 current price + $4.57 total distributions - $7.90 price on 3/31/09 divided by $7.90) vs. DIA up 109% (146.88 + $11.87 total dividends - 75.84 price on 3/31/09 divided by 75.84). All distributions are simply added back. If you reinvested dividends, DPO actually beats DIA from the 1st qtr '09 to today.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Your website DOESN'T include total distributions for DPO's NAV or DPD's NAV or any other CEF's NAV for that matter and let me tell you why. Because it uses the same data source as Yahoo! Finance and many other financial websites. Go to Yahoo! Finance, plug in DPO or any other CEF. Go to Historical Prices and hit Dividends Only. There you'll see all the distributions listed for the stated period of time. Now put in XDPOX or any other CEF's NAV and you'll see none (actually just started to include them for 2013 but the adjusted close will be more and more understating performance the farther you go back). So you really don't know how DPO's or DPD's NAV has performed against DIA on a total return basis except from inception now do you? Would you be surprised to learn that DPO's NAV has essentially matched if not beaten DIA on a 1-year, 3-year and from the market lows since March 2009?
Now, you do make one good point indirectly. These are not necessarily funds you want to buy and hold, and certainly not from inception. You have to wait until the discount widens during pullbacks and sell during uptrends when and if they get to premiums. If you had bought DPO in the fall of 2008 when it was at a -15% discount and sold a year later when it was at a 30% premium, you would have had a total return FAR greater than DIA while being paid a 20% annualized yield at the time. Granted, such a situation may never occur again but you need to realize that DPO, and even DPD, will be more volatile than DIA and give you more opportunities. On the other hand, their NAV's and especially DPD's NAV will be LESS volatile than DIA and will hold up better than DIA in a down market. Even DPD's market price shows you that in your website.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
DPO is slightly leveraged whereas DPD is not. Otherwise, they are the same. M* probably has DPO at 4-stars because of that leverage and the higher volatility compared to its benchmark. BTW, as a non-leveraged option-income fund, DPD will hold up far better than DIA in a bear market. Go ahead and plug DPD into the link below from mjs_28s during the bear market of Sep '07-Mar '09.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
Second, you're using the market price of the fund, NOT the NAV. When a fund goes public, its market price starts 5% over the NAV anyway. I would never recommend anyone buy a CEF at an IPO price because it immediately drops to the NAV price and usually doesn't stop there. If you want to compare the true apples to apples performance, use the NAV of DPO & DPD compared to DIA, but your link won't include distributions for the NAV prices so it doesn't work. I, however, do include distributions so I know how they have performed. BTW, the whole reason you buy CEFs at discounts is because their market prices may not reflect the value or performance of their NAVs. Plus, you get a windfall yield buying a CEF at a discount.
Third, I am well aware of distribution cuts for all the option-income funds. They all had overly generous NAV yields of 12% or higher (DPO's was 20%!) after the bear market and the ensuing bull market did not allow their NAVs to recover nearly as quickly. Thus, they all cut distributions to get their NAV yields down to more manageable 7% to 9% NAV yields and since then, their NAVs have done much better. All of this I have written many times in articles over the past couple years if you care to read.
Equity CEFs: How To Buy The Dow Jones Industrial Average At A -6% Discount [View article]
PIMCO Global StocksPLUS & Income Fund PGP: A High Yield Dividend Option, Is It Sustainable? [View article]
PGP is also a Closed-End fund and has the highest premium valuation of ANY CEF. For a fund that has NEVER cut its distribution and will have one of the most volatile NAVs because of its high use of leverage and its S&P futures contracts, I suppose a 54% market price premium over its NAV should not be unexpected considering PIMCO's prowess at fixed-income investing. Allianz does not manage PGP even though PGP is under the AGIC sponsor name.
Nontheless, investors need to realize PGP has to support a 15.3% NAV yield to receive only a 10% market yield. A 15.3% NAV yield is a huge red flag and it will be not be easy for PGP to maintain that going forward. All you have to do is realize that PGP is paying the same $2.20/share annual distribution with a $14.35 NAV as it did when it went public with a $23.83 NAV.
As long as the S&P and bond markets keep going up, PGP can maintain its distribution but frankly, there are much better risk/reward CEFs that are at wide discounts and pay even higher monthly yields.
Equity CEFs: Is It Time To Overweight The Option Income Funds? [View article]
$13.24 EOI's current NAV
$12.35 EOI's NAV end of 2012
$11.93 EOI's NAV end of 2011
Looks to me as though EOI has been growing its NAV more recently, and that's including deductions for distributions. Yes, go back further and virtually all option-income funds were losing NAV after paying distributions, the true definition of destructive ROC. Much of that was due to the fund's having NAV yields much higher than they could support, some 12%+. I wrote many articles on the subject pointing out that distribution cuts were the proper course of action and in the long run, would help the funds grow their NAVs. Eaton Vance and Nuveen in fact, were the first to get their fund's NAV yields down to more manageable 7% to 9% NAV yields starting in early 2010, while ING and BlackRock have been doing it more recently.
EOI's NAV yield is now a much more manageable 7.8% but because of its wide discount, investors can pick up almost a 9% market yield. EOI's performance has dramatically improved too, both at NAV and market price, up 22% and 28% respectively since 2011.
Beware Of Covered Call Funds [View article]
Second, I have a question regarding the risk/reward measure of these funds and whether you are using the market prices or NAV prices in your analysis? I believe you are using the market prices since NFJ would not be that highly rated over the past 3-years if you were using its NAV. NFJ raised its distribution substantially in late 2010 which is why its market price has done so well but its NAV has been nothing special over the past 3-years.
So if you're using the market prices to compare risk adjusted returns, then that is not really apples to apples with the S&P 500. If you performed a risk adjusted analysis with the NAVs of these funds, not only will that show much less volatility compared to their market prices but I believe they will show a much better risk/reward when compared to the S&P 500. Of course, you can't buy the NAV like you can an ETF but then you can't buy an ETF at a double digit discount either!
Equity CEFs: Is It Time To Overweight The Option Income Funds? [View article]
What's most important if we go into a flat to down market period, which is what I am suggesting, is if ETV's option premium can cover its distributions. At 96% coverage and up to 2% or so out-of the-money options, ETV easily accomplishes that if all the option premium were realized. That won't happen, since some months the fund will lose on its options, but the fact that ETV can easily cover its distributions with its option premium is all I'm concerned with. ETV is very defensive and as you can see, will barely cover its distribution in a strong up market. Its designed for a flat to volatile up and down market and I believe that is what we are going into. But even if I'm wrong and the bull market continues, ETV will still be fine.
Equity CEFs: Is It Time To Overweight The Option Income Funds? [View article]