Joe Eqcome

CEF Weekly Review: Ping Pong, Anyone?

In the final analysis the shareholders own the companies in which they invest and should be operated for their benefit. For concerned shareholders not to agitate for a higher valuation is a dereliction of their rights. (Not everyone trades this stock on price variations. In fact, most of the shareholders are probably “buy and hold”.)

Shareholders need to continue to legitimately challenge management to seek demonstrable ways of adding value, or outside influences (raiders) will bring to bear that challenge by removing management in favor of their own interest and that interest may not be aligned with the remaining shareholders’ interest.

I believe not enough pressure is being placed on ADX’s management to close its persistent 12%-15% discount in a portfolio of highly-liquid large cap securities.

Shareholders should seek a resolution for ADX for a trigger mechanism that after a certain time period if the discount remains at 10% (or another legitimate discount) ADX should institute a in-kind tender offer, much like Tri-Continental, so shareholders can at least realize some of the discount in the secondary markets.

I believe a fear of a loss of management fees and potentially a loss of management's jobs would place a new urgency on focusing on getting the value up from this persistent, dismal discount. Let me also note there’s been paltry insider buying by management in ADX. So, apparently, they agree that the discount will persist in the future.

This doesn’t have to necessarily end up in the liquidation of ADX; it could end up in higher valuation for the shareholders and ADX remaining a closed-end fund.

That would make us all happy.
On Nov 08 08:25 PM jse17 wrote:

> “Joe, Leave ADX Alone!”
>
> As mentioned in response to your earlier “attack” on ADX, its P/D
> figures generally correspond to and are often better than similarly
> positioned CEFs. Additionally, as the previous poster mentions, the
> fund’s management is solid if not spectacular. Moreover, it does
> not require a finance Nobel Laureate to formulate a buy/sell protocol
> on this or any CEF.
>
> In the end, all cancers commit volitional suicide by consuming their
> afflicted host! Opening all CEFs is analogous in character!

CEF Weekly Review: A Good Scare

I believe a CEF must pay out its net investment income (NII) and capital gains annually or pay an excise tax if they do not have offsetting losses.

Currently, BIF has $.01 per share in undistributed net investment income losses. For the first 6 months (5/31/09) BIF net investment income per share was break even. Depending on its net investment income for the 2nd half, it may pay a distribution in December. I would be suprised if they reinstated a managed distribution policy.

DNY has approximately $.16 per share in undistributed net investment income.


On Nov 01 03:16 PM Jonquil wrote:

> Is there any indication when BIF and/or DNY will resume paying dividends?

CEF Weekly Review: A Good Scare

I agree with most of your points. (Its weighted alpha is 19.0 versus a CEF market segment average of 43. Yes, you’re paying a fee on PEO; but you’re also getting it at an 11.1% discount.) However, the attraction here is the narrowing of the discount through activist intervention.

Earlier this year I authored an article entitled “The Case for Tender, Liquidation or Conversion of ADX” joeeqcome.web.officeli.... ADX’s discount at that time had an average monthly discount of 13.4% since the end of 2003. My case was essentially the discount has been persistently and unreasonably larger and ADX's board should do more than occasionally buy back some of its stock. It should consider a liquidation or conversion to an open-ended fund (mutual fund or managed ETF) to maximize shareholder value.

I believe the large discount is the attraction to the stock and it will become increasingly difficult for ADX to prevent an activist investor from at least attempting to close the discount in the next 12 months.

I also hyper-linking a study entitled “Activist Arbitrage: A Study of Open-Ending Attempts of Closed-End Funds”. finance.wharton.upenn.edu/~itayg/Files/cefactiv... A key variable in guiding activist arbitrageur is the fund’s discount from its NAV. There empirical results suggest that a one percentage point increase in the discount is associated with a 0.66 percentage increase in the probability of an attack in a given year.

Following an attack by an activist arbitrageur, the discount shrinks or disappears if the fund is open-ended, so that overall activist arbitrage is found to have a substantial effect on CEF discounts.

I believe ADX is as good a target for an active arbitrage as any other CEF candidate. Whether it will take place is speculative. But if you play by the numbers, the odds are favorable.

Anyhow, I’m being paid to wait. It clearly not an stock for everyone.

Joe Eqcome

On Nov 01 10:55 AM frogmatic wrote:

> ADX seems to trade at a permanent discount of around 15%; their long-term
> alpha is indistinguishable from zero; and its energy "exposure" is
> only 11% of the portfolio (compare to 21% consumer and 13% financials).
> Not to mention you're paying for two levels of management fees for
> the position in PEO. I'm not sure what the attraction would be relative
> to, say, an straight investment in SPY.

A Cyclical Guide to CEF and ETF Investing

I found that chart on the Morningstar CEF blog. It was provided by a blogger named Camois (sp). He is a very knowledgeable observer of the CEF market segment and is a frequent contributer.

You can probably track him down the by going to the Morningstar CEF blog and querying Camois with regards to the chart.

I also have a similar chart that was put together by S&P. I don't think it’s as good as the one above, but if you're interested let me know and I'll make it available.

Joe Eqcome

On Oct 28 08:55 AM Innocex wrote:

> Great job Joe as always, thanks for your efforts... I am curious
> what your sources were for the graphic depiction of the stock market
> sectors’ response to a normal cyclical economic contraction and expansion?

Profiting with a Dividend Avoidance Strategy

A clever observation. Thanks

Joe Eqcome

CEFs Report Mixed Messages

The insiders' chart above was from a previous week. The following is a hyperlink to this week's insiders' chart.

joeeqcome.web.officeli...

I apologize for the error.

Joe Eqcome

CEF Weekly Review: Expect Increased Volatility

Thanks. I didn't know they had such an index.

Joe Eqcome

PPM Claims Liquidation Is in the Best Interests of the Fund

You may not be aware of this, but a group of large CEF sponsors/advisors got together and hired a computer hacker (I think it was a Russian) to create a word processing algorithm that drops the last word in the phrase: "would not be in the best interests of the Fund".

That last word is "Advisor".

Joe Eqcome

ETFs Take the Lead: Will Mutual Funds Fade Away?

Russell

For me there are two issues regarding ETFs overtaking mutual funds.

The first is the index (ETFs) versus active management (mutual funds) argument. An article in today’s WSJ intimated that on a risk adjusted basis most actively managed mutual funds lag behind their indexes over time. Not a pretty picture. Score one for ETFs.

But threshold issue may be the success of newly minted, actively managed ETFs which are just being rolled out.

If actively managed ETFs provide comparable returns of mutual funds in some of the major investment categories for those seeking active management, then why would you want to own a mutual fund?

All things being equal, the ability to trade ETFs during the day is a compelling feature over mutual funds.

I guess the other question is: what is the complexity and cost of converting a mutual fund to an ETF?

Maybe if you can’t beat them, you join them.

CEF Weekly Review: Wall of Worry

You are correct. HTR's distribution has been a constant .0475 monthly distribution per shares.

I apologize for the error. Thanks for the heads up.

Joe Eqcome


On Oct 05 10:27 AM User 153012 wrote:

> Re your htr comment: distribution has been constant @ .0475.

CEF Weekly Review: Wall of Worry

Candidly, I think that if that’s your logic regarding the justification of a managed distribution policy, the fund should be completely liquidated so investors get all their capital back immediately as opposed to dribbling it out in a return of capital portion of its distribution.

A 15% discount is a compelling for liquidation--particularly if its been persistent. This partial payout of capital is only for the benefit of the advisor who continues to generate fees. However, the fund’s shareholders suffer as the fund gets smaller the expense ratio become larger, the liquidity becomes less and valuation will continue to deteriorate.

If the trustees had the shareholders best interest at heart they should liquidate the fund. But, as we all know, the trustee are usually beholding to the CEF sponsors.

Joe Eqcome


On Oct 05 10:00 AM User 153012 wrote:

> Re your csp "eating your young" comment on managed distribution:
> would you rather have principal payments immediatly marked down 15%
> on receipt by the fund, or have that payment in your hands, at 100%,
> to invest where you please? The new policy was adopted at the urging
> of the fund's largest shareholder.

CEF Weekly Review: Wall of Worry

I agree with your assertions--particularly, regarding the complexity with respect to this Buy/Write sector.

I believe the option premium is only recognized for GAAP purposes on expiration as opposed to being amortized over the life of the option contract. So, were probably not getting an accurate read of net investment income portion of the distribution on an interim basis.

So, you'd have to interpolate the net investment income to address your issue of matching investment earnings with the interim distributions. This would be difficult.

Other alternative would be to look at undistributed net income number. If it’s a negative number then you’d be possibly closer to having a portion of the distribution being return of capital—albeit, no guarantee.

How much reliability would you place on the Section 19 reports for the character of the distribution?

Any help here would be appreciated. It is a complicated area as you suggest.

And as a result it may be inefficient.

Joe Eqcome


On Oct 05 04:37 AM GlobalTrekker wrote:

> For the ETW distribution yield, I think it would be most useful to
> track the actual income of the fund. That, combined with its annual
> return, would give the best idea of true yield. For the buy/writes,
> even the return of capital is a confusing measure.

ETFConnect Is No More

If there is truth in jest, you're the funniest guy I know.

Joe Eqcome

Why Choose Low Yield over High Yield Stocks?

The underlying assumption of your thesis is that lower yielding stocks with greater dividend growth rates would sell at a higher future stock valuation. This share price appreciation would offset the initially higher cash dividends of companies with higher dividend growing at a slower rate. This is a reasonable assumption for long-term investors for the examples you've provided.

In your example, both for a 5 and 10 year holding period, assuming the stock’s value at the end of the holding period is based on the last year’s dividend divided by the now current yield, investors are better off owning low yielding, higher growth dividend stocks. They have higher IRR's. (Interestingly, this is also holds true if the yield proportionately declines 50% or increase 100%.)

If however, the yields of lower, higher yielding stocks do not change proportionately, due to a specific set of economic or financial circumstances, it is possible higher yield, lower growth stocks could do better.

This would be the case if the higher yielding lower growing stocks were selling at a greater discount to their intrinsic value than the lower yielding stocks due to investors’ risk assessment.

If that discount for the higher yielding stocks at some future point were to narrow as risk assessment eased, it would impact their yield multiple favorably relative to the low yield, high growth stocks.

The other case where high yield, low growth stocks may do better is in very short holding periods. This might be the case in the trading of high yielding stocks in the face of a sharp easing in risk assessment or declining interest rates. In this case, you may get a near-term spike in the share price.

However, for long-term investors, lower yielding, higher growing dividend stocks may be a better choice.

The key in either case is to focus on their respective free cash flows.

Joe Eqcome

CEF Weekly Review: Real Estate Extends Gains

BCT's special distribution of $.531 per share will go to reduce the NAV and therefore will reduce the liquidating distribution by a like amount.

As a result, the current NAV is approximately what shareholders will likely get as a liquidating distribution--it just will come in two parts.

Joe Eqcome