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Equity CEFs: The Insanity Of CEF Investors
I can't make excuses for the Alpine funds. They fit into my 'crash and burn' group of funds whose NAVs have caved over the last 3-4 years. They're not the only ones though. The Allianz fund NAI has been through a rough time. The Wells Fargo EOD fund has followed a similar path. The BlackRock fund BOE managed to raise its NAV in the last few months and cut its distribution at the same time, so it's not surprising that it trades at a discount. And I think that's the issue with ETY. The portfolio managers do an admirable job of supporting the NAV, but then cut the distribution rate.
And therein lies the rub. I'd guess the price of AOD is being supported by investors who see it as a cap gain play rather than a distribution opportunity; tho if you're just now buying in, even 2.7 cents a month is 8% against a $4 share price, competitive with other, better managed funds. My crystal ball tells me that if the price remains flat around $4, these folks will sell out and the premium will narrow. In my view, Alpine's dividend capture strategy is OK and with new managers, hopefully they'll get better at it. And investors may have, perhaps naively, been convinced [by other SA contributors] that all ROC is bad. The Alpine distributions come from income. Distributions from equity funds that earn premiums from writing calls, are called ROC for an accounting reason peculiar to options.
The Eaton Vance funds, tho, have another problem. They seem to be doing OK supporting the NAV, if not the price. But they keep cutting the distribution - perhaps that's what's keeping the NAV up. The portfolio managers have been in place for years; they're covering more than 50% and sometimes 90% of the portfolio. I don't see a strategy change on the horizon so I'm not sure what management can do for the funds. Unless they bump the distribution back up a tad or at least reverse the downward trend, I don't see the discount changing much.
A couple of suggestions:
to folks who want to get alot of info on one page, use the data set at CEFconnect. There are lots of tools, but I use the site because it assembles data from several sources in one place. For me it's easier to grasp the essentials here vs Google Finance, Yahoo or Morningstar
if you want to know why covered call premiums are considered return of capital, read the SA article by Greg Group 12-18-11. It's considerably more succinct than the 3 chapters + video at Morningstar.
if anybody knows of a site that distinguishes between 'destructive' NAV robbing ROC and covered call ROC, please post it.
I am long on all the funds mentioned in Mr. Albo's article, Alpine included.
Jan 31, 2013. 01:42 AM
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Maximizing Retirement Returns Through Social Security Elections
my wife and I are both 60 and plan to take SS at 62. our approach tracks along the phrase 'you can't take it with you'. sure, delaying ss a couple of years will increase our monthly benefit, but I don't think I'll be hitting the blacks at that point or solo sailing across the bay. I'm sure some folks are still working on their bucket list into their 70s and 80s but I prefer to finish mine off sooner rather than later. People approaching retirement need to make judgement calls of course, but life has alot to offer when you can see, hear and walk without assistance.
Jan 19, 2013. 11:17 PM
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