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  • Equity CEFs: When The Bottom Falls Out  [View article]
    L1329-8 / Paul -

    There are plenty of ways to properly evaluate and compare Total Return ...and I defer to experts like Doug and others for their impressive data charts ...

    A few years ago, someone referred me to Dividend Channel . COM and their handy Performance tool ...that measures the value of $10,000 invested on a specific date / all reinvested dividends as compared to several indicies or even an individual stock ...

    This is a quick snapshop of raw performance without the accounting gimmickry and terminology ...simply put : How has $10,000 actually perfomed in a CEF as compared to the S&P 500 ...It helps to weed out the malcontents and LOSERS ...and makes your decision making that much easier.

    The crux of ALL the NAV / ROC arguements boils down to weather or not fund management is " cannabilizing " their asset base by simply mailing you back a portion of your principal investment and calling that INCOME ...

    Doug has identified several fund families where that is EXACTLY what is happening ...( Cornerstone ? ) and attempting to attract high yield investors with an outsized dividend distribution ...which in actuality is mostly a Return of Capital ....

    A good way to evaluate weather or not that is happening is ALWAYS a quick peek at the most recent annual report ...where they are required to list the NAV of the fund in the financial highlights section on a trailing five year basis ...

    Example - ETY - page 12

    2015 - $ 12.01 , 2014 - $12.34 , 2013 - $ 11.87 , 2012 - $10.96 and 2011 - $ 10.83

    While NOT perfect by any means, you can get the trendline with just a glance ...In this case , the NAV has INCREASED $1.18 since fiscal 2011 ...( + 10.89%..call it + 2.17% per year on average and not too shabby as they say )

    ETY also distributed $5.479 per share to shareholders over that same time period ...

    The conclusion being , at least for this specific fund ( ETY ), that ROC is NOT destructive at all ...and helps fund management provide a stabilized managed distribution of dividends each month ...

    Now ..in fairness ...check out the Cornerstone annual report ...and see the EXACT OPPOSITE ...( really scary stuff - lol )

    Hope this proves helpful - Mike
    Jan 22, 2016. 12:07 PM | 3 Likes Like |Link to Comment
  • Equity CEFs: When The Bottom Falls Out  [View article]
    NV_Gary -
    ETY fund management reserves the right to re-characterize those distributions in their 10/31/16 annual report ...AND ...they have done EXACTY that in 2015 and 2013 ....In 2014 the ROC component was something close to 68% of the distribution ...

    Here is what I believe is going on : ( best guestimate )

    The fund has an estimated 85% annualized portfolio turnover ...among the 55 stocks it holds ...The total assets under management in the fund is right at $1,795,490,000 so that implies they will have $1,526,166,500 in principal transactions during the fiscal year ...( 85% turnover )

    ETY has an absolute need to distribute $12,553,314 in dividends each month ...or $150,639,768 per year ..

    Options and dividends got them about $31,647,552 net in 2015 ...so ...the fund management is using ORIGINAL CAPITAL to make up the monthly dividend distribution shortfalls ...from all of the estimated 1.5 Billion in annual sales ...AND ...as you suggest ...it will be a BIG PERCENTAGE of the monthly distribution ...likely $10,000,000 or so of the $12,553,000 they need each month ( 79% ? or more )

    They also hold ( according to their annual report ) about $112,147,210 in NET UNREALIZED APPRECIATION on the books as of 10/31/15 ...doubtless reduced 10-15% by the recent market decline ...but still substantial nonetheless ...

    My thinking is that ETY management is running the Long Term Capital Gains clock on much of that UNREALIZED APPRECIATION so they can get the much more favorable LTCG tax treatment on assets held longer than one year ...otherwise it would be the disasterous short term capital gains rate ...with two consecutive years of 83% and 85% portfolio turnover ...that might be harder to accomplish than you think.

    So ...they pay the managed distribution of $0.084 per share each month using option premiums / dividends net of their expenses ...and make up the shortfall by sending out the remainder in the form of ROC .... ( whew )

    Then ...magically ...the holding period of the stocks in the portfolio pass the all important ONE YEAR mark ...and ETY management can re-characterize the previous monthly distributions FROM ROC to LONG TERM CAPITAL GAINS ...and have Deloitte & Touche certify it ( again ) in their 2016 annual report ...

    This is EXACTLY what they did in 2015 ...and 2013 ...

    As if investing in Closed End funds was not confusing enough ?

    Bottom line - DO NOT depend on those nice little paper statements EV sends out every month defining the amount of ROC in the previous distribution ...They actively change it anyway.

    I had to " beat this information" out of an EV supervisor back in 2013 ...when the fund suddenly changed tactics and went to a 130% portfolio turnover ..up from 30% ...and they re-charaterized the entire ROC component to zero ....from the preceeding 10 months ...

    but ...that is a story for another time ...LOL

    Hope this helps - Mike
    Jan 20, 2016. 08:38 PM | 4 Likes Like |Link to Comment
  • Equity CEFs: When The Bottom Falls Out  [View article]
    4Tom - Thanks ...One of the best parts of this SA comment board is the astute minds that evaluate data presented and seek to confirm it or at least present an opposing view. ( am NOT including myself in that category by the way - lol )

    More than once, I have had my numbers challenged and my assumptions blown up ...ALL for the better as I firmly believe that extra bit of knowledge , especially about Closed End mutual funds , discounts , ROC and actual Total Return versus what brokerage statements seem to be reporting .... For example ..My statement shows a " SIGNIFICANT " on-going unrealized capital loss from my years of holding ETY ...over $4,014 on a $23,614 cost basis investment ...( before the January meltdown too ) ...except that the total current actual value of ETY in my account is quoted at $37,974 ...

    Reinvested divdends over the years being the difference ...and the accounting rules properly require that statements show reinvested dividends as new cash investments ...

    I tried explaining all this accounting and tax stuff / ROC component to my " Old School " Mom .... 86 years young ...

    She quickly cut me off ...by asking .." How much have I LOST dammit ? "

    Told her she has more than DOUBLED her investment over the years ...in hard cash valuation ...just in ETY. That's all you have to tell me she advised ...LOL ...

    Somehow, I think a lot of mutual fund investors are poorly served by their statements ...and the unrealized losses tend to mask the overall gains.

    Thx - Mike
    Jan 20, 2016. 07:54 PM | 2 Likes Like |Link to Comment
  • Equity CEFs: When The Bottom Falls Out  [View article]
    papaone - Thanks for you kind comment and your accounting questions ...uh oh ...I am NOT an accountant, and would gladly defer to the accounting professionals on this board ...especially for tax advice ...
    With the aforementioned disclaimer and understanding that my accounting knowledge is ... " a mile wide ..and an inch deep " ; allow me to suggest some answers to your questions and DEPEND on the experts here to correct me where I go wrong.

    NAV is nothing more than the NET ASSET VALUE of the fund ...so ...YES , if the fund takes in say $25,000 in dividends from a stock position in its portfolio ...the NAV of the fund should go UP by that amount ...Similiarly ...the fund has 149,444,220 shares outstanding ...paying $0.084 per share EACH month ...so the fund MUST distribute $12,553,314 each month by the fourth week of each month ...and that should REDUCE the NAV by that amount also ...wait ..it gets better ...

    ETY is sporting an 85% annual portfolio turnover with about $1,795,000,000 in portfolio value ...so imputing the 2015 portfolio turnover into the coming year ...and ASSUMING even a flat to modest year ...That will be resultant in about $1,525,750,000 in capital ...that has to be accounted for from a tax standpoint ...some losses / some gains ...some short term / some long term ...REALIZED capital gains / losses ...and all of which impact the daily calculation of the NAV.

    The fund seeks to provide TAX ADVANTAGED income ...so that usually means LONG TERM Capital gains because they are taxed much more favorably than Ordinary Income for example ...

    Index Call options are automatically taxed at a 60/40 long term / short term basis ..( Supreme Court ruling back in the early 1990's )

    ETY reported an UNREALIZED capital gain of $112,147,000 in its portfolio as of 10/31/15 ...doubtless that has been eroded 7-14% with the market weakness experienced over the last few weeks ..but its still considerable ...and gives the fund management desired flexibility to SELL those appreciated securities to meet the high monthly dividend requirement and still provide tax advantaged income for investors.

    My understanging is that ...YES ...all distributions impact the NAV as money leaves the fund ...( lowering its overall value ) ..but a large percentage ( unknown ) is undoubtably reinvested back into the fund thru dividend reinvesting ...

    ETY used to pay out quarterly dividends ...and the three month accumulation proved so tempting to traders, that they literally just purchased the fund a few days before the dividend ex date ..and then dumped it a few days later ...capturing the cash dividend ...Fund management finally put a stop to that in 2014 I believe ...by going to a monthly distribution.

    The NAV would and should decline as the fund pays out dividends ...but with reinvesting , certainly a large percentage going right back into the fund, and options being sold and new dividends coming in each month ...that would knock off an inexact piece of the NAV ...probably less than $0.06 per share or therabouts ...each day the fund makes a distribution ...12 x per year ...in this example.

    Hope that was somewhat helpful ....Mike
    Jan 20, 2016. 01:17 AM | 2 Likes Like |Link to Comment
  • Equity CEFs: When The Bottom Falls Out  [View article]
    4Tom - Respectfully , but of significant importance ...lets challenge the data you presented on a 1, 3,and 5 year time line ...

    One Year - ETY started 2015 priced at $11.22 per share and closed the year market priced at $11.20 ...The fund paid out $1.09 per share in dividends during the year...so ... there is no mathmatical way the Total Return performance on a One year basis could possibly be $9,748.00 as the DRIP Returns Calculator postulates ...Instead ...it should be $10,992.

    Three Year - ETY - ( reinvested dividends ) -$15,423 VS $14,820 for the index

    Five Year - ETY - $16,265 ( reinvested dividends ) VS $17,778 for the index.

    Its the difference between a really ROTTEN rate of return during some good years in the market as presented in your note...and Excellent performance , often times beating the pants off the unmanaged S&P index benchmark ...+861 basis points alone in 2015 ....( a huge outperformance by any measure )

    The audited and published rate of return for ETY on a five year trailing basis ending the 2015 fiscal year is +10.34 % ( market price ) Thats what made me question the numbers you presented ...

    Possibly ...just possibly, the DRIP returns calculator does NOT include potential Return of Capital ( ROC ) in its performance calculations ? I dont know ...That may have thrown off the calculations ? Yahoo Finance shows the fund with a paltry 3.2% dividend yield ...when the real yield is 10.21% at current market pricing ...because of this same ROC concern.

    Far from being a simple accounting gimmick ....or unimportant data ...on a 1,2,3, and 4 year trailing period, Investors in ETY have a real NET VALUE advantage over investors in the simple S&P index ...Better put - More money in their pockets ...

    On a five year basis ... you are correct however.

    Thats why we hire the fund management and pay their fees ...

    Regards - Mike


    Thats what
    Jan 20, 2016. 12:30 AM | 2 Likes Like |Link to Comment
  • Equity CEFs: When The Bottom Falls Out  [View article]
    Mr Park - Appreciate the reply ...and ...YES ...( lol ) we are actually BOTH right in a way regarding the Return of Capital ( ROC ) concerns ...The press releases you reference from Feb / Mar of 2015 are in point of fact " estimates " ONLY ...and fund management reserves the right to re-characterize those monthy distributions ( audited and certified by Deloitte & Touche ) in their fiscal year end ( Oct 31, 2015 ) annual report ...recently published by the way. Page 15, properly declares the distributions declared during the FULL fiscal year as :

    Ordinary Income - $31,647,552
    Long Term Capital Gains - $119,530,221
    Tax return of Capital - $ ZERO

    Its EASY to make the mistake you referenced by pointing to ETY's monthly news releases regarding the " estimated " tax characterization of each monthly distribution ...In 2013 , it was around 80% of the annual dividend ...but then the fund management departed from their traditional LOW PORTFOLIO TURNOVER tactic and literally liquidated their entire portfolio ( 130% turnover, up from 30% the prior year ) and washed several hundred million dollars of capital gains AGAINST the 2008 / 2009 capital loss carryforwards that were on the books ( expiring soon ) ...creating a tax liability of TRUE ZERO ...What ? ..yes ...they actually did that ...The Eaton Vance customer service representative somewhat smugly advised me that the fund's name was ' Tax Advantaged ' ...and this was a very " slick" and effective methodology...washing all the long term capital gains away, in a good investing year, against the carryforward losses every fund had from the Crash of 2008, without costing ANYTHING to shareholders ( tax wise ) or forcing a nasty year end distribution of capital gains to investors as the law would normally require ...( impressive actually )

    Now, to your central point that ETY may tend to underperform in certain " good" years in the market ....

    Lets use the " Jack Webb " methodology of .." Just the facts ...sir " ( apologies to Dragnet fans )

    ETY versus the S&P 500 - Total return - data courtesy of dividend channel :
    Trailing FIVE YEAR return - ETY + 10.23% SPY - +12.21%
    Trailing FOUR YEAR return - ETY + 16.52% SPY - +14.80%
    Trailing THREE YEAR return -ETY +15.57% SPY - +14.04%
    Trailing TWO YEAR return -ETY +11.65% SPY - +7.72%
    Trailing ONE YEAR return -ETY +9.92% SPY - +1.31%

    On a five year basis ...your thesis seems CORRECT ...ETY underperformed the benchmark index by 198 basis points ...

    But ...on a TRAILING and... What have you done for me lately ? basis ...4 yr , 3 yr, 2 yr and 1 yr ...ETY is posting 150 to 175 basis points ABOVE the index ...and a whopping 861 basis points of outperformance in 2015 alone ..( Ballgame )

    My goal for mutual fund management is to provide some " value added " when compared to just owning the S&P 500 index ... and to produce / deliver an audited 10%+ average Total return on a meaningful time line ...3-5 years at a minimum ...They do just that.

    ETY posted a + 32.03% Total Return in 2009 as compared to +22.67% for the S&P index ...but they got clobbered in 2010 ...producing ONLY a -2.80% negative return as compared to the index with a +12.67% yield ...was easy to forgive them after the +32% the prior year ...lol

    So what do all of these complicated numbers and tax characterizations mean to us anyway ? ( Glad you asked )

    My OPINION ....for what that is worth, is that ETY is an unusual hybrid of AGGRESSIVE fund management and portfolio concentration ...just 55 stocks in the fund ...the Top TEN stocks account for 32% of all value ...

    Fund management is perfectly comfortable with an 85% annual portfolio turnover ...more when it suits them ...as they have proven in the past ...

    They can flex the number of S&P CALL options they sell each month ( 17 day on average days to expiration in 2015 ) from 4,000 contracts to 7,500 contracts as they see fit ...The TAX LAW allows them to get a 60/40 long term / short term capital gain characterization on these option contracts regardless of holding period. This allows the fund to provide " tax advantaged " monthly income at much cheaper tax consequenses than Ordinary income.
    This investment tactic is largely UNAVAILIABLE to 99% of investors ( Naked Index Calls ? your broker will hang up the phone )
    It ALSO explains why on 300-500 point DOWN days in the market ...the NAV of the fund actually RISES considerably ...making that discount to NAV all the more attractive.

    ETY is NOT deriving its market performance from option premiums as you assert ... ( some ..yes.. but not much )...They are getting it from the portfolio itself ...

    We started this conversation about ROC ...and its potentially deleterious impact on the fund performance ...My contention is that, while perhaps true at other funds ...that is NOT happening here ...

    Hope this proves helpful ....Thanks for the feedback ...

    Mike
    Jan 19, 2016. 10:53 PM | 3 Likes Like |Link to Comment
  • Equity CEFs: When The Bottom Falls Out  [View article]
    Mr Park - ETY has NOT used Return of Capital or Other capital in fiscal 2013 or 2015 to pay their hefty monthly dividend distribution. Instead the cash was earned thru simple investment income and realized capital gains. The overall portfolio turnover in 2014 was 83% ( approx ..if memory seves ) and 85% in 2015 ...and 130% in 2013. In 2014 they did in fact utilize ROC to pay their dividend ..approximately 67% I believe.
    The 2015 annual report additionally indicated that the fund has $112,147,210 in unrealized capital appreciation although the depressed market in January of 2016 will have diminished that somewhat. The point being that fund management has plenty of capital gains to " realize" to sustain the monthly dividend ..at least for several quarters ..( they needed $119,530,221 in 2015 to help pay the dividend for a point of reference )

    The overall NAV of the fund : 2011- $10.83, 2012 - $10.96, 2013 -$11.87, 2014 - $ 12.34, and 2015 - $12.01 ( page 12 annual report - audited numbers )

    The funds holds just 55 large cap stocks ...Apple , GE , Gilead , J&J ,Disney, Visa, JP Morgan, Alphabet , Amazon and Danaher are fully 32.5% of the fund ...so the NAV and market price tend to swing with the information technology , consumer discretionary and financial sectors ...and impact the NAV much more so than any dividend distribution.

    Another point - ETY is an OPTION INCOME fund and specifically NOT a " Covered call " fund ...The fund has NEVER utilized a covered call investment strategy ....preferring instead to simply SELL 4,000-5,000 S&P 500 index CALLs only each month ...this can only produce monthly income ...in a tax mandated 60/40 long term / short term capital gains characterization ...( if we did this ...it would be " naked " call writing where our maximum gain possible would be the option premium recieved from selling the contract ...most brokers would simply refuse to do it anyway ) ...Last year fund management closed out roughly 50% of the CAll options written for a closing cost of $39,488,150 ...( ouch ) ...but they took in $80,390,795 in option premiums recieved ...and simply let about half of the Index Call contracts expire. ( they keep the cash - lol )

    In contradiction to your central point, ETY offers a more defensive way to own a blend of large cap, mostly US stocks ...with partial protection from the Call options ...which they use on approximately half the portfolio ..in difficult times, fund management has increased this option percentage to 75% ...and thus increasing their monthly income as well.

    Finally - ETY DELIVERED a 2015 Total return of + 9.92% wheras the S&P 500 delivered about + 1.31 % ...the AVERAGE trailing return ( audited ) at market price for ETY on a FIVE YEAR basis is + 10.34% and + 10.57% for the NAV rate of return.

    ETY seems to be in great financial health, with monthly income from dividends and option premiums coming in and over a $100,000,000 of capital gains they can realize should the need arise ...

    My opinion is that its a good fund for perilious times ...

    Hope this proves helpful - Mike
    Jan 19, 2016. 11:23 AM | 12 Likes Like |Link to Comment
  • Equity CEFs: Funds To Buy, Funds To Sell From The Major Fund Sponsors  [View article]
    Doug - always enjoy your astute analysis ..and have been holding ETY for a long time ...

    Just reviewed the paper annual report and it had a few goodies I thought worthy of mentioning ...Your comments always appreciated
    .
    In an earlier posting, ( 11/6/15) I suggested that a $10.35 market price might be a logical point to try and " bottom fish" for additional shares of ETY.
    With the additional trouble in China and the glut of oil supplies driving down the cost of oil ...The NAV of ETY, despite owning literally thousands of defensive S&P 500 index Call options each month, has steadily declined to $10.96 per share NAV with a Friday close market price of $9.88 per share.

    This inputs a 9.85% discount to NAV on a closed end mutual fund that provides $1.008 per share in annualized dividend stream ...that implies a forward looking 10.2% yield.

    In calendar year, 2015, ETY DELIVERED a Total Return of + 9.92% versus the S&P 500 index Total Return of +1.31% ( data courtesy of dividend channel ) ...My on-going contention is that this impressive out-performance is largely missed or ignored as the typical brokerage statement does NOT report Total Return ...preferring to show the $11.22 per share starting price on 1/01/15 and the $11.20 year end price ...essentially a flat to negative performance during 2015 ...except that , with dividends reinvested, the owner has almost +10% more in value than at the beginning of the year ...

    The fund EASILY earned its dividend stream in fiscal 2015, according to their annual report, utilizing ZERO Return of Capital and paying the rough dollar per share from investment income and realized capital gains exclusively. This makes the continuous ROC discussion about funds " eating their own NAV " essentially moot. There simply was NONE.

    ETY has been averaging a trailing five year rate of return of + 10.34% ( annual report, page 3 ) ...NOT too shabby for a mutual fund and especially important in view of the dismal investing year of 2015 and the horrible start of 2016.

    The fund holds ONLY 55 stocks ...with Apple, Google, GE, DIS, Visa, Gilead, Amazon, J&J ,JP Morgan, and Danaher composing 32.5% of the entire fund ...!!!! and now on SALE for approximately 10% discount to their Friday closing value.

    Move ETY to the top of your WISH LIST ...get PAID while you wait for a recovery ...10% is good ...lol ..

    Hope this proves helpful - Less
    Jan 16, 2016. 01:02 PM | 3 Likes Like |Link to Comment
  • Prospect Capital's NAV, Dividend, And Valuation Compared To Several BDC Peers (Post Calendar Q2 2015 Earnings) - Part 1  [View article]
    Thanks for the comprehensive article and the analytics presented ...certainly a compelling rationale for holding BDC stocks and PSEC in specific.

    I , however, hold a contrary view as a former holder of PSEC stock and it has little to do with the metrics you presented so well but rather everything to do with the management of the company.
    It was not just the seemingly constant stream of secondary offerings that diluted the common share price, I lost faith in their trustworthiness and management capability when looking at one of their so-called " Green Energy " investments a few years ago in Maine. PSEC lost a few million dollars on this " Green Energy" as reported in their annual report ...not so bad in the age of Solyndra and other failed Green projects ...but...then I took a look at the specifics ...Google revealed that this was a "Firewood" company with a horrible reputation ...a firewood company that didn't own the trees it was harvesting ...How could that have possibly got by their due diligence ? their crack management team ? ...I concluded they didn't do much due diligence or research ...they just wanted to book a Green Energy project ...
    Comparatively ..I had the opportunity to sit in with the MAIN management a few years ago and looked at their specific investment in Castro cheese in Houston ...they had the loan , a piece of the company and were first in line for any restructure if the company went out of business ...My assessment was that these guys at MAIN were the " Real McCoy " and knew exactly what they were doing ...they laughed when I suggested a Firewood company investment ...and then gave me five fast reasons they would NEVER consider it ( they didn't know that PSEC had done exactly that )
    Subsequently I purchased a good chunk of their new offering ...at $12 per share.

    The data presented in this article was superb ...but the intangible management expertise I saw at MAIN , each of them " knee deep" in shares of the company personally ...made me a true believer ...

    Thanks ...
    Sep 8, 2015. 03:12 PM | 4 Likes Like |Link to Comment
  • A Close-Up Look At The Report That Had MannKind Investors Reeling  [View article]
    Goldman Sachs Research Analyst ....( almost a conflict of interest in the job description alone ) - GS does have a clientele of major corporate organizations , ultra high net worth individuals and even Countries ...( Greece comes to mind ) Despite this impressive " stable " of customers ; GS earns right at 80% of its considerable annual profits by placing BETS ....er ....investments with their own capital.
    Their familiar tactic is to use their cache to the wealthy and political types as a door opener to various new customers ....and once inside the financials of the organization ...a surprising and sudden amount of " short interest " in the common stock typically appears ...slamming the common stock market price significantly. ( look at what they did to another small company - BPZ a few years ago )
    One noted author has called GS a " vampire squid " sucking the life from their own customers / clients ...while of few select clients benefit greatly.

    Does any of this sound even vaguely familiar to the MNKD situation in today's environment ??
    In my opinion; Goldman Research, especially downgrades, are almost always dramatic events ....scheduled and designed to " shake-the-tree " and have many smaller investors quickly sell or dump their shares ....They are making their money by betting their own accounts and assets ...to the tune of 80% of their annual profits ...that places THEIR financial interests far, far in front of their clients and the investing public ....

    Just a few years ago ( 2008 ); the mighty and well regarded Goldman Sachs did NOT have enough cash on hand to meet their month end payroll ...The Federal Reserve , made them a bank in one day ....a real bank , not just an investment bank, and loaned them $10 BILLION dollars to stay in business ....They had essentially BET their corporate asses on the mortgage market and CDOs ....with massive leverage ...they were literally and actually insolvent.

    They issued Research reports ( sounding familiar ? ) calling for an immediate rebound in the mortgage market and those CDOs ....They were wildly inaccurate and wrong ...

    Goldman Research - issued a BUY recommendation on Fannie Mae / Freddie Mac citing their implied government guarantee and AA+ rating ...both stocks subsequently collapsed in the ensuing months ....

    They helped Greece out tremendously ...by bundling their future revenue from hospitals , roads and even the various Port authorities into a massive bond offering , whereby the local yokels in Athens would get some immediate cash from the bond creation , but then be stuck for decades with an impossible debt servicing on those same bonds ...which they sold to their unsuspecting retail clients and other brokerage houses ( anxious to market the super duper interest rate bonds backed by the revenue of a sovereign member of the EU )

    These bonds are all but worthless ...

    You seeing a trend here ? I literally laugh when I see a document chock-a-block full of charts and impressive graphs from Goldman Sachs ...like their MNKD Research downgrade ....The SA author of this article properly notes that the revenue projections seem odd ...suspicious even ...wondering where the supporting data is coming from ....

    I don't ...I just ASSUME that GS is producing another document for the " yokels " or the little people ...They are a vested player in this game, not an independent or even a particularly honest broker for us to depend on their research advice.

    Want more circumstantial evidence ? Jon Corzine served as the CEO of GS in the 1990's ...later as a US Senator and Governor of New Jersey. He took over MF Global in 2010 , a long term and quiet little company that had previously been hedging farm crops and commodities as their primary business ...In less than 24 months he bankrupted and closed the company ....by BETTING corporate assets and monies NOT the property of MF Global on super high risk investments.

    This is a culture thing with Goldman ... They are NOTHING more than a particularly fancy hedge fund ...wearing the cloak of a banker ...thanks to the US Taxpayer , but needing to make outrageous profits to keep their principals and key clients happy ....Those impressive gains often come at the expense of others.

    No ...I don't concern myself with Goldman Sachs Research , and neither should you.

    Hope this proves helpful ...Thx

    Mar 10, 2015. 01:43 AM | 17 Likes Like |Link to Comment
  • Assessing High-Income Covered Call CEFs  [View article]
    Thanks for the interesting and informative article ...

    The questions about UNII and ROC have plagued funds like ETY for quite some time and seem to relate to the overall financial health of the fund. The accounting methodology / terminology can be confusing and misleading ...as several of the comments listed here indicate.

    Using ETY as a baseline ( since I follow that specific fund ) ; perhaps a better indication of overall financial health might be the ( audited ) total income or loss from operations on a per share basis ...?
    In 2014 , ETY published a + $1.481 per share income from operations ...their second best year since 2010 ...while distributing $1.012 per share in the form of dividends ...( 83% portfolio turnover )
    In 2013, ETY published a +$1.993 per share income from operations while distributing $1.096 in dividends ...( 130% portfolio turnover )

    If the thrust of the ROC and UNII questions / concerns are directed at the ability of the respective fund to sustain the monthly dividend stream, it stands to reason that an audited " surplus " of income on a per share basis is a good metric to use.

    Another might be Unrealized Appreciation in the portfolio year over year ....( although a bad week or two in the market could significantly reduce that number ) ETY posted a + $158,339,832 in unrealized appreciation in fiscal 2014.
    This after taking a REALIZED gain of + $560,378,480 in fiscal 2013 ...effectively using up their capital loss carryforwards from 2008 / 2009 ...and completely eliminating ROC from the dividend distribution for 2013 ...( clever move in my opinion as long term capital gains are still taxed much more favorably than ordinary income for most taxpayers )

    The questions relating to Index options versus individual Call options on a specific stock ....Index options are by tax law granted an automatic 60/40 Long Term / Short term capital gains status , regardless of the holding period ...which is good since fund management is using a holding duration averaging 14 days ....Individual options on stocks do NOT feature that inherent tax advantage ...and typically require the fund to utilize an Options Advisory firm which is expensive and paperwork intensive.

    Finally ...Several of the CEF's you listed are utilizing an aggressive share buy-back / retirement program ...ETY officially "retired" 140,000 shares of stock in fiscal 2014 and 1,385,696 shares in fiscal 2013 at an average discount to NAV of 10.56% and 12.92% respectively ...and have authorization to " retire " upwards of 13,000,000 additional shares at their discretion. This can also be called an advantage versus ETFs as fewer shares mean a smaller monthly dividend distribution requirement ...and potentially a higher NAV.

    Thanks again for the great article ...Mike
    Feb 11, 2015. 11:39 AM | 3 Likes Like |Link to Comment
  • Eaton Vance Tax-Managed Diversified Equity Income Fund declares $0.0843 distribution  [View news story]
    Good morning ...and thanks for your question.

    Citing the most recent ( audited ) annual report ; ETY is using an estimated 47% overwrite of S&P 500 index CALL options ( only) to augment portfolio income, and serve as a good size defensive barrier against sudden market price swings in the overall market.

    This typically works out to between 4,000- 5,000 index calls opened and mostly closed each month ..Fund management can increase that percentage of Call contracts at their discretion and have done so in the past ...( seem to recall them being at 65% at one point ....)

    Information on these type of so-called Option Income funds can be found on the respective home website of each fund ...Eaton Vance has a very good and easy to navigate section that includes the respective annual reports of their various option income funds ( ETY , ETW, ETV among others ) Search Eaton Vance Closed End funds ...select your favorite fund.

    There are other mutual fund organizations that also use Index Options as an important tool in their portfolios, I just happen to follow Eaton Vance ....I would check out Doug Albo here on Seeking Alpha and reference some of his previous articles on closed end funds ...plus I notice that a new article on " Assessing High Income Covered Call CEFs " was published here on Feb 9 ...but I have NOT had time to review it in detail ...it sure sounds like what you were looking for.

    Hope this proves helpful - Mike
    Feb 11, 2015. 10:20 AM | Likes Like |Link to Comment
  • Comparing Dividend CEFs With ETFs: Which Are Better?  [View article]
    User429135 - Appreciate your response and comment ...and wish you the best of luck ...

    Just to be clear ...ETY and ETW both lost significantly in fiscal 2014 with their defensive options trading tactic ...so in a literal way ...they are NOT depending on the option premiums being taken in to pay the monthly dividend.
    The underlying portfolio value increased, dividends paid from the stock held in the portfolio and a portion of the proceeds from the sales of stock transactions were used to pay out the monthly dividend.
    In a weak or down market ....ETY / ETW has the ability to be flexible with the amount of options overwrite ...increasing the level from 47% -70% if needed ...and the overall value of the Index Call options will INCREASE greatly on sudden " bad-days" in the market ...( like today ) ...giving the NAV some protection.

    AOD is more aggressive of the two funds ...the new portfolio managers describing in their commentary where they are using leverage to buy stocks paying a special or one time dividend ...then quickly closing that position ...that tactic had some decent success for them in fiscal 2014 ...but seems contingent on an environ that has plentiful candidates for special dividends ....and that tends to be a very good market.

    My tenure with AOD earned me an annual return ( dividends reinvested ) of +13.77% ...whereas ETY earned ( dividends reinvested ) +17.56% annually ...approximately six years of duration measured.

    Both are decent numbers ...and worthy of inclusion in the equity portion of your At Risk portfolio ...

    Regards
    Jan 27, 2015. 02:54 PM | Likes Like |Link to Comment
  • Comparing Dividend CEFs With ETFs: Which Are Better?  [View article]
    User429135 - Thanks for your earlier review and question ...

    I follow ETY closely and their most recent ( audited ) annual report for fiscal 2014 details how the fund essentially lost ($28,295,915) writing S&P 500 index calls against their portfolio during the year ...despite that loss; the fund earned a net +$222,120,871 in asset increase with $48,424,890 coming from investment income and $173,758,924 coming from asset appreciation.
    The fund declared that $0.685 per share was effectively ROC and that $0.327 was attributable to investment income ...ETY distributed $1.012 per share during fiscal 2014 but EARNED $1.481 per share ...( 2014 was their second best year of the last consecutive FIVE YEARS with only 2013 being better and where the fund earned $1.993 per share but had a portfolio turnover of 130% to do that ...with ZERO ROC for fiscal 2013. In 2014 , portfolio turnover was reduced to 83% ...
    As the numbers above indicate ...even with a large ROC component in their 2014 dividend distribution ....ETY managed to INCREASE their NAV substantially ...illustrating that ROC does NOT necessarily reduce the NAV.

    So ..to better answer your question ...Where does ETY get cash to pay out the large monthly dividend ? - Answer - from monthly options premiums taken in, from a portion of the proceeds of their monthly sales of securities and from dividend income from the 60 large cap stocks they hold ...they can increase that cash flow simply by increasing the percentage of options overwrite they use, currently at 47% of portfolio but which has been as high as 70% in the past.

    ETY does NOT have a $300,000,000 or $700,000,000 line of credit against its portfolio like AOD has ...and it does NOT borrow money to meet the monthly dividend requirement.

    AOD seems to be a much more aggressive fund than ETY which uses S&P 500 index calls as a defensive tool ....AOD used to have a portfolio turnover greater than 300% per year ...650% in one outrageous year ...AOD is more like a recovering alcoholic fund, trying to stay on the wagon ...but they just keep falling ...they missed 2009, 2010, 2012 and 2013 completely ...and turned in a lackluster 2014 with over a 300 basis point underperformance compared to the S&P index ...

    Hope this proves helpful - Mike
    Jan 26, 2015. 01:54 PM | Likes Like |Link to Comment
  • Comparing Dividend CEFs With ETFs: Which Are Better?  [View article]
    User429135 - Thanks for reading and commenting ...here is the sourcing for the claim that AOD is in simple point of fact making use of leverage to sustain or enhance their portfolio yield : ( I do believe that there is cause for concern on that score )

    The April 30,2014 semi annual report AND the Oct 31, 2014 annual report ( audited and signed by Deloitt ) both confirm that AOD has a line of credit with BNP Paribas that was INCREASED from $300,000,000 to $700,000,000 from March 31,2014 - May 31,2014 but which will revert back to $300,000,000 through fiscal 2014. Terms of the loan is Fed Funds rate plus 0.95% per annum on amounts borrowed ( page 22 of the semi annual report )
    The maximum amount of the line of credit available will be the lesser of 33.33% of the total assets of the fund or the amounts disclosed above.

    During the period ending 4/30/2014 - the average borrowing of the fund was $4,225,445 at an average rate of 1.02% ...and the maximum borrowing was $34,431,762 with interest totaling $21,714.

    Summary - with all due respect to CEF Connect, they are a little slow to update, particularly since the fund, from inception, was designed NOT to make use of leverage ...The management commentary for the fiscal year end even makes mention of the use to leverage to enhance the yield ...

    In my opinion ...this is far from some obscure accounting point of order ...fund management has gone thru some pains to negotiate and for a brief time to more than DOUBLE the amount on their line of credit ...and YES ...an average interest rate of 1.02% sounds very favorable ...but at the end of the day ...they are BORROWING MONEY to sustain their dividend payments ...and my original contention was that this adds a new dimension of risk and liability to an already hyper-aggressive fund tactic of " Selling Dividends " which individual brokers are precluded by securities regulation from doing ...and adding an outstanding loan balance to that tactic seems to be adding more risk to a fund that has dramatically underperformed over the past five years ...

    With respect ...I stand by my earlier comment that AOD is using leverage to meet the dividend payment requirements. In simple point of fact; they negotiated to increase their line of credit to $700,000,000 in early 2014 for a few short months ...this ..on a fund with $1,082,298,147 in net assets at the time.
    Regardless if you think AOD is just being smart and taking advantage of the low interest rate environment ...Its simply NOT accurate to say that the fund does not employ leverage. ( They clearly do )

    Hope this proves helpful - Mike
    Jan 26, 2015. 12:14 PM | Likes Like |Link to Comment
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