Madison/Claymore Covered Call Fund (MCN)

All Comments on MCN

  • commenter
    Internet2k4
    Feb 16 11:11 AM
    Further Thoughts On Call-Writing Closed-end Funds (BEP, FFA, IGD, JPZ, JSN, MCN, NFJ) [view article]
    This is a helpful explanation of the difference between CC fund payouts and dividends, but I'm a little perplexed by this analogy: "The insurer banks the majority of the premiums he collects as reserves against disaster and you, the investor, should bank the vast majority of the premiums you collect from your covered calls against the day when the calls are exercised." It's the CC fund, not me, who is charged with protecting against the downside risk of the strategy - as an investor, once I get my monthly check it's "from my cold dead hands." As an investor, I need to know enough about the CC fund model and consequent market risk to guess that the monthly check is enough to offset it - the 5% CC fund yield spread over dividends has to be for risk and sacrifice of growth. Hopefully these are taken on intelligently on the same basis as high-yielding but more familiar junk bonds or energy trusts. It appears there are well and poorly run CC funds as is the case for insurance companies and even dividend-paying corporations (which now and then founder.) If there is some deeper undisclosed risk associated with the model or management of some particular CC fund such that the yield is either too low or is unsustainable, I hope it will be exposed here - but I haven't read anything beyond the obvious, that my monthly check comes at the expense of underperforming the assets held by the fund. Reply
  • commenter
    Internet2k4
    Jan 24 09:39 AM
    Assessing Closed-end Call Writing Funds (CEF: MCN) [view article]
    Everything said above would seem quite right to me if the model was for a fund to be 95% invested at IPO and to nibble away at the assets covering calls - I imagine different funds work variously, and some may be fishy. This is the MCN blurb from ETF Connect: "Its investment objectives are to provide a high level of current income and current gains and long-term capital appreciation. The Fund will pursue its investment objectives by investing in a portfolio consisting primarily of high qualitylarge capitalization common stocks that are in the view of the Fund's Investment Manager selling at a reasonable price in relation to their long-term earnings growth rates. Under normal market conditions the Fund will invest at least 65% of its total assets in common stocks of large capitalization issuers that meet the Fund's selection criteria." I take it the fund is constantly replacing the underlying assets on something like a GARP basis. It doesn't seem intrinsic to the model for the fund to pay out all the proceeds from call writing - it would logically keep enough to keep maintain the asset pool. I may be missing something but it seems to me a sustainable model in theory, at least. (I note MCN insiders have been purchasing.) I appreciate the discussion. Reply

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