Best piece you have written in quite a while. I think,however, that your ROC comment must be tempered with a "destructive vs non -destructive " discussion, or at least a qualifying comment.
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It would be perhaps more helpful if you chose different segments of the CEF universe rather than a few funds of a subset of fixed income. Option income and muni CEFs would have been more broadly received, Regards, W. Kirk
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Thanks for your thoughtful response. First, I agree with you about "managed distribution" funds. I simply don't trust them as you don't. I suspect their boards will eventually discover that this distrust damages the premium/ discount relationship. In regard to second point, I am always surprised when incorrectly value ROC. If you invest in a non ROC fund you receives taxable dividends taxed at what ever your marginal tax rate is. Now as dividend tax rates are rising dividend income will become less valuable (perhaps a surprise for income investors coming in April of 2014) If however, you receives non destructive ROC you pay no dividend income tax upon receipt and find it upon sale as reduced cost basis. Unlike dividend income it can then be used to offset any loss carryforwards making it also non taxable. There are interations of this strategy using DRIP plans. I have no doubt that there are sophisticated investors using this strategy but for some reason small investors, regardless of tax rates, seem to be caught up in the views of many pundits who refuse to understand these useful facts. Eventually, I suspect theses ROC funds ,that currently produce non taxable returns well above muni CEF's will be recognized for there true value. Personally, I hope it doesn't happen to quickly as I still have positions to complete. Regards, W.Kirk
Don't Close The Door On Closed-End Funds [View article]
A wonderful article for beginners. Please describe the difference between "destructive" and non "destructive" ROC and while your are at it describe the after tax value of the conversion of income loss to capital gains loss, Regards, W. Kirk
Scottish Doug, There is a difference between reporting and analysis what was written was reporting not the latter. It doesn't require a recommendation but at least an opinion of comparative risk, I personally expect this from contributors as I think the editors of SK agree, Regards, W.Kirk
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Kraken, It seems to me from the confusion and misconceptions seen in the above comments you should at least confirm and verify you statements. You can start with the issue of tax deferment and distribution conversion from ordinary income to long and or short term capital gains. Suggesting that you are not a tax advisor and that a reader should consult their own just does not cut it in this forum, Regards, W.Kirk
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Doug, I am surprised you didn't mention the additional value of the ROC component. "Other distributions" not calculated as income is a joy this time of the year, Regards, W.Kirk
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Best Regards, W. Kirk
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In regard to second point, I am always surprised when incorrectly value ROC. If you invest in a non ROC fund you receives taxable dividends taxed at what ever your marginal tax rate is. Now as dividend tax rates are rising dividend income will become less valuable (perhaps a surprise for income investors coming in April of 2014)
If however, you receives non destructive ROC you pay no dividend income tax upon receipt and find it upon sale as reduced cost basis. Unlike dividend income it can then be used to offset any loss carryforwards making it also non taxable. There are interations of this strategy using DRIP plans. I have no doubt that there are sophisticated investors using this strategy but for some reason small investors, regardless of tax rates, seem to be caught up in the views of many pundits who refuse to understand these useful facts. Eventually, I suspect theses ROC funds ,that currently produce non taxable returns well above muni CEF's will be recognized for there true value. Personally, I hope it doesn't happen to quickly as I still have positions to complete. Regards, W.Kirk
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