Douglas Albo's  Instablog

A couple of the Gabelli leveraged funds I believe are vulnerable to any kind of a sell-off in the equity markets now. The Gabelli fund (GAB) and the Gabelli Global Media Trust (GGT) are pure stock based funds which use quite a bit of leverage meaning they have no fixed income to cushion any equity market sell-off. Both funds have done incredibly well due to that leverage with GAB's NAV up 22.1% YTD and GGT's NAV up 22.3% and their total return market prices have done even better which has brought both to the high end of their premium/discount range.

Now I'm not saying the markets are going to sell-off here but after the run we've had, I wouldn't be surprised to see some kind of a backtrack. Both funds are up 1% heading into a soft market close and with both funds at 4-year highs and premium valuations, I would be careful.

They're still a month off from going ex-dividend in mid June and a lot can happen before then.

Disclosure: I am short GAB.

If you own DPD or looking for a good hedge on the Dow Jones Industrial Average (DJIA), you might want to sell or short DPD up here at $16.05, up 4% right now and at a premium valuation.

Looks like someone has a forced buy-in going on since I don't know why anyone would be buying DPD up this much otherwise. If any DJIA CEF should be at a premium, it should be DPO since DPO has MUCH more NAV upside than DPD in a strong market. DPO also has a higher yield than DPD too.

Crazy things going on in the CEF universe!

Disclosure: I am long DPO.

It's as simple as that. There's been a seller in DPO now for a couple weeks and its discount has now become stretched to close to -7% with the market price at $11.90 and its NAV at a 52-week high $12.82. Volume today is well over its 110,000 daily share average after only an hour of trading.

Obviously, someone is making a market call that the DJIA is topping or is shifting over to technology or some other sector and with DPO leveraged to the Dow, they're getting out of a more volatile and less liquid security like DPO.

I don't know if you can make that kind of a call and with DPO now at the low end of its discount range, I think you would be smarter to own DPO and hedge by owning the inverse DJIA ETF (DOG). I wouldn't necessarily short DIA, the SPDR DJIA ETF, because it pays a monthly dividend and you don't want to have to pay that.

This would be a way to lock in a 7.3% yield and have some downside protection though I wouldn't hedge any more than 1/3 of your long position in DPO. If you think the market rallies on from here, I would recommend just owing DPO outright. DPO's NAV is outperforming the DJIA, up 15.4% YTD compared to DIA up 15.1%, though DPO's market price is obviously underperforming.

When I look at pure leveraged funds trading at much narrower discounts to even premiums now w/out any defensive positions like short call options, it makes DPO very undervalued IMO.

Disclosure: I am long DPO, DOG.