sskell

CEF Week in Review: Riskier Fund Types Rule

Isn't this pretty straightforward: they knew that if they eliminated the distribution the share price would collapse, allowing them to buy it a lot cheaper. They can reinstate the distribution anytime; if I were as cyncial as these guys seem, I'd even raise it from its previous level to suck in all the retail investors that love a big distribution yield regardless of its source or sustainability.

The Closed-End Fund Discount Quandary

ZZ - agree; I love CEFs that trade at a steep discount and overpay distributions. Too many CEF investors are dividend focused, not total return focused.
d-teller: your thesis is incorrect; CEFs value their holdings nightly through exchange or third party services
oldman: pricing transparency is many times GREATER for equity CEFs than muni CEFs; you've got this backwards

Like staria, I manage(d) both open end and closed end funds. This board should listen to him; this is great buying opportunity given the size of the discounts in the CEF market. The real drivers of these discounts are retail sentiment (negative); dividend trends (negative), market direction (negative) and market volatility (negative), IMHO.
Take a look at NFJ: like many CEFs, it was overdistributing. When the manager reduced the dividend to rectify that, the fund discount to NAV increased 10% to about 25%! This fund has a 97% correlation to the S&P500; it's very large ($2b); its fees are reasonable (96bps)and its dividend is reflective of actual market conditions. It's historical discount pre-2008 was around 3-5% (my eyeballing of the charts). So why would you own SPDRs when you can own the same thing at a 25% discount?

Fed's Decision to Purchase MBS Priced into Mortgage CEFs?

Joe:
The bigger and more interesting question here is the impact of the Fed's MBS policies vis-a-vis the mortgage REITs (mREITs"). REITs are the closest financial vehicles to CEFs; the major difference is the amount of leverage. Firms like Annaly (which also manages FMY) and MFA but 100% agency MBS with 6-7x leverage. The advantage of the mREITs over the CEFs is that the mREITs are not focusing their purchases on the exact types of agency MBS which the Fed is buying and therefore are able to purchase relatively more attractively priced agency securities. The fees on the CEFs are high relative to the expenses associated with the mREITs, especially given that these are not high yielding (or difficult to manage) strategies. There's much better liquidity with the mREITs as well.

Eight Companies That Are Hiking Dividends

The biggest, safest dividend out there is the mortgage REITs - NLY, MFA, ANH, etc.