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My Cupolone Income Portfolio: Diamonds Are Forever

May 02, 2020 10:19 AM ETBME, DSL, ETO, EVT, GGM-OLD, HTD, PCN, PDI, PDT, PTY, RNP, RQI, UTF, UTG59 Comments
Guido Persichino profile picture
Guido Persichino


  • The massive sell-off in mid-March seems a distant memory as markets strongly rebounded as we approached an easing of the coronavirus lockdowns.
  • All of the CEFs in my portfolio took major hits, but they also showed an encouraging resiliency that allowed them to recover a great part of their losses.
  • By taking advantage of the price collapses at the beginning of April, I was able to complete my Cupolone Income Portfolio.
  • My new portfolio shows an overall anticipated yield of 9.72%, assuming there will be no dividend cuts.
  • Because almost all of their distribution regimes are actively and wisely managed, I don’t expect the CEFs in my portfolio to have massive cuts to their dividends.

“The First Cut Is the Deepest”

In 1967, a little-known English singer of Greek origin, Steven Demetre Georgiou, released his second album, “New Masters,” under the pseudonym Cat Stevens. This album included 12 songs, among which the most famous is “The First Cut Is the Deepest.”

In the case of the S&P 500’s decennial bull market, the first cut also was the deepest as the market experienced the largest plunge in its history, even as it was at its historical maximum. That first and deepest plunge lasted for nine days, from Feb. 19 to Feb. 28. The first week of March offered just barely enough time to catch a breath, then came the terrifying two weeks of sell-offs in mid-March.

The following chart shows the S&P 500’s rollercoaster ride over the past three months (since Jan. 27). The ride began with the steep and severe initial plunge on Feb. 19. What followed was one month of free fall, with five long dips, each followed by a subsequent short rebound, until the market hit bottom on March 23. Since then there has been a gradual, but mostly continuous recovery, interrupted just twice during April.

(All data as of April 29).

(Source: FinecoBank, Italy)

Bracing for the Ride

The following chart shows the actions I took during the sell-off. Looking back, perhaps I moved too much and too soon at the end of February, but I wanted to create a strong foundation that could withstand further shocks and at the same time open a path to new growth. The steps I took bore fruit through the entire month of March, especially during the above mentioned dips.

In the meantime, as shown in the following chart, the CBOE Volatility Index (VIX) reached a maximum of 83.56 on March 16, with a same-day close

This article was written by

Guido Persichino profile picture
I graduated in Languages in 1988, and then worked for 25 years as an editor at various publishing houses. In 2005, fate turned my attention to the world of finance, and when I lost my job in 2013, I decided to dedicate myself to it. In particular, I focused on building an income portfolio based on ETFs and CEFs. Although I have never worked as a Financial Advisor, I believe that sharing my experiences with managing my own income portfolio can provide others with helpful insights for their own portfolios.

Analyst’s Disclosure: I am/we are long BME, DSL, ETO, EVT, GGM, HTD, PCN, PDT, PDI, PTY, RNP, RQI, PKO, UTF, UTG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (59)

daltonb profile picture
excellent Guido. I am down in the far south (South Africa) and find it interesting, especially wrt the holdings you are long on. Personally, I like BST, PTY and BOE. Keep on contributing!
Guido Persichino profile picture
@daltonb Thank you for your words. I will.
Investors have to love this announcement about Flaherty & Crumrine preferred funds Increasing distributions due to lower leverage costs ,wonder why more leveraged funds won't
Guido Persichino profile picture
@hingroyield If it's true that we are facing a major financial crisis, this announcement sounds like people dancing on Titanic.
Is a downgrade an automatic sell?
As mentioned this portfolio is made up of leveraged holdings.
Based on that are these funds selling a low discount considering NAV?
I assume none are selling at a premium?
I own PCI and DSL....those did not do well in March/April compared to others.
Guido Persichino profile picture
@labman106 For me a downgrade, in itself, is not necessarily a red flag.
Williams Bay Analytics profile picture
@Guido Persichino

Do these holdings comprise your entire portfolio? If they do, then you essentially have an account on margin. Virtually all of these funds utilize borrowings to boost yield. That's effectively the same thing as a margin account. I have owned closed end funds for years (currently 2...PCI and PFN), but try to be careful as to entry points and my total exposure given that extra level of risk. Quite a few articles on SA were touting funds such as PCI as "must own" at significantly higher prices. Your close to 10% portfolio yield should speak volumes as to what you're doing here.

Secondly, be careful with your comment regarding "managed distributions". You can fool yourself into thinking there is no dividend cut when in reality there might be if that distribution is partly a true return of capital.

Finally, I also agree with @Archman Investor regarding Morningstar. Ratings are a useless rear view mirror construct. I'm also suspect of constructs such as RiskGrade.

I do appreciate your clear writing style. Thanks for sharing.
Guido Persichino profile picture
@Williams Bay Analytics Thank you for your words and for sharing your thoughts. CEFs are the core part of my portfolio already 6 years. I survived many turmoils, mistakes, blunders, illusions... The portfolio I selected is based on total return, as I explained in my November article “Comparing Morningstar Ratings and Total Returns.”
The only CEF showing a consistent return of capital so far is HTD, but there's a lot of utilities and energy inside.
(Of course I have an american friend proofreading my articles before submitting, otherwise... farewell!)
@Guido Persichino
With all due respect you have been invested for a very short time during one of, if not, the strongest bull market in history. You haven't experienced any real stress during that brief time. Should you have perhaps four or five decades of experience you might not feel nearly as confident with your positions as you currently do. While not making any predictions just possibilities, how are you going to feel if you see your current holdings drop back to the lows of March or even lower?
Can you tolerate a 30-40- 50% drop in the value of your portfolio along with the accompanying cuts in dividends and distributions? There is a reason really great successful experienced investors such as Buffett, Icahn, Marks, Tepper, Gundlach self-made billionaires are staying on the sidelines urging caution and warning that we are in the very early stages of the greatest financial crisis in our history.
While I can afford to remain in cash indefinitely, if I needed to generate income I would build a portfolio such as equal percentages of DLTNX PONAX OSTIX MGF MIN (or similar) generating a safe 6% return with a maximum drop of 7-8% during another severe drawdown, always with the opportunity to move into higher risk investments when and if the time is right.
Good luck to us all.
Guido Persichino profile picture
@du4sloop Well, I tolerated even up to 60% drops in some stocks (especially banks) I bought during the 2011 Italian financial crisis, and of course it was not so much fun.
I think this is a crisis generated by exogenous causes. When those causes will fade, there will be a general resumption.
I own dsl and eto. As others mentioned, eto cut the distribution. Also does the star rating really gave any impact on the price? I believe dsl is better than a one star.
Guido Persichino profile picture
@littlecubbie1985 I believe it too, but the star rating is a purely mathematical measure that shows how well a fund's past returns have compensated shareholders for the amount of risk it has taken on.
ETO cut distribution the day after I submitted my article. Were they waiting for me?
xKaotic profile picture
We are in DNP, PCI, PCN, PTY and UTG for CEF allocation.
Guido Persichino profile picture
@xKaotic DNP is an interesting CEF too.
Ignore Morningstar.
They know nothing.
They tell you what you want to hear after the fact.
Don’t waste your money on them.
I agree. Pimco High Income PHK is a 4 star fund. Its premium has been as great as 60% over NAV, its UNII is not good and it is periodically cutting distribution. The only way I see it as a 4 star fund is that PIMCO is paying Morningstar for the rating. GUT is another 4 star fund. Right now its premium is 80% over NAV.
Fast Track to Financial Independence profile picture
Yes, PHK is disastrous, just look at the chart since inception, then compare with the same chart for PCN, which has a very similar portfolio. The PCN chart trends up over time, and it never cut the distribution.
Guido Persichino profile picture
@Fast Track to Financial Independence That's the reason why I chose PCN.
Very nice, shuffled up my portfolio and swapped out of about 4 positions that increased my about yeild 25%. are you a pro cycling fan... I am and my all-time fav riders is # 1- The Lion King ... Mario Chippoloni and #2 Marco Patani...
@Cyclenut - Love road cycling! I gladly pay NBC Sports and FloSports to watch it! What about about Fausto Coppi, Jacques Ancquetil and Eddie Merckx - "The Cannibal"? Best of all time I say. I love Robbie McKewan too. Not the greatest sprinter, but feisty and a great announcer to boot. Mario Cippoloni was definitely the greatest Italian sprinter. Keep the cycling faith brother. Hope we have a Tour and a Vuelta this year. I've written off Il Giro.

- Hoosier
Loved Lance until it went south...
Guido Persichino profile picture
Marco Pantani, whose nickname was "Il pirata" (The Pirate), is still a legend in Italy.
Hi Guido, thank you for these very good posts! I am curious how to access the risk grades? The service looks to be discontinued other than simply providing a score? Maybe I’m not going to the correct link? Please advise where to go.
Guido Persichino profile picture
@440Cuda Thank you, here is the link:
(you can find it in the article too).
Hi, yes, I’m already aware of that. Is there anything more? For example, this would be the same as only seeing a Morningstar rating but not having access to the publicly available Morningstar data or analysis. For example, they show a sample mountain chart. Where can I find the actual chart, data, etc. for a given fund? “Trust, but verify”. 

Do you know if there more available through a subscription anywhere? I’ve pursued many links but cannot find anything.
Guido Persichino profile picture
@440Cuda I normally use Morningstar and Seeking Alpha. On SA you can find a lot of informations on all the CEFs you want. But I tend to make it simple...
As Edward C. Johnson says in “Contrary Opinion in Stock Market Techinques,” (in The Investor’s Anthology, 1997), “There are a great number of ‘technical indicators.’ There is nothing secret about any of them (that are worth using). There is nothing very complicated. You can’t get complicated anywhere in this business without being lost… each complication begets 10 others, and so on.”
As one who has hitherto invested only in individual stocks and bonds, I just recently ventured into the CEF world. Of your Cupolone Portfolio I hold PTY, PKO, and UTG. Color me cautiously optimistic.

Retired income investor
Guido Persichino profile picture
@usiah "Pessimism of the intellect, optimism of the will" (Antonio Gramsci, Italian politician and philosopher).
I like almost all your choices and the good news is that you're likely to have more opportunities to average down and significantly boost your income even if there are cuts in some of these funds distributions.
Guido Persichino profile picture
@du4sloop I'm glad you like almost all my choiches. Thank you. Dividend cuts depend on how things develop.
daver202 profile picture
Eto cut this week and others may as well but I like most of your selections. Long term I agree that things will work out
Guido Persichino profile picture
@daver202 Yes, ETO cut distribution the day after I submitted my article. Perfect timing...
surfer101 profile picture
great article & Music - great song!
The first cut is the deepest - 60s/70's/early 80's had the best music/singers/bands. 60's was before my time but I love that music era. I love PP arnolds version best. A singer with nothing more than a mic - you used to have talent back then no autotune.

cef selections: great selections. Before the crisis I was investigating many of the CEF's on your list: pty/pci/pdi/utf/utg/rqi as satalite investments to my core of divy payers (schd/apple..etc) but c19 changed my strategy. I'm in cash other than apple and just trading cefs for now as they swing wildly. I'm using any cash I raise in trades to augment my core which is locked away in money markets/cds...etc since sept/oct 2018. yeah, it stinks getting a tiny 2% or so yield but I figure any positive yield is better than a possible massive drop. The warning signs started in 2018, continued in 2019 (3 rate cuts + 1/2 trillion in QE), and the virus in 2020 just popped the illusion. Trillions in deficits, stimulus or more like life line money, 0 interest rates, fed buying everything with QE infinity, congress pumping in trillions... and what did we get for all that money? A market back to where it was at the tail end of 2017. This is not a good time for long term (10+ years) investors if you ask me...too much chaos and uncertainity. It is a great time to trade a set amount you are willing too lose. Im not holding anything for the long haul that can't survive 5-10 years hence I only hold Apple for now. They have enough cash to last 5+ years or more. The long term ramifications of all this debt and destruction is not known yet. Earnings don't matter, fundamentals dont matter, profits....no thanks. The fed distortion is violating the physics rules of investing to where they no longer apply - thus the market is not investable. Good luck to you and rock on with 60s music - motown, the philly sound, the great bands..nothing but garbage today.

Linda R. Now she could sing anything.
Guido Persichino profile picture
@surfer101 Thank you for sharing your thoughts, I appreciate. Yes, too much chaos and uncertainity, but this too shall pass. And I hope it will turn out this was the right time for long term investing. As Warren Buffett said yesterday, "Never bet against America!"
surfer101 profile picture
Oh I agree, I always bet on America to win but the question is when to place the bet. When I enter the market it is usually for a 10 year stay. Im a buy and hold a long time investor so I'm looking at long term ramifications of the massive Fed distortion to the market, the massive debt, massive deficits...etc I exited in 2018 and see no reason to re-enter for my next 10 year market stay at the moment. I'll trade these CEF's with my 20k casino limit to raise cash but right now I'm in wealth protection mode. Uncle Warren is also sitting on a record cash pile so when is he going to bet on america? This feels more like 2008 vs the march 2009 low period which signaled the next run higher. Look at HYG - junk bond fund. It is only yielding about 5-6%. Junk? That's it for taking such huge risks on junk bonds? Something is not right - FED distortion. Lenders should be getting huge yields as companies race to raise cash with bonds rated junk - nope. Fed stepped in. When Uncle Warren is sheltering in place with 130+B who am I with my tiny cash life boat to jump in these shark infested waters. I'll stick to quick hit and run trades. Good luck to you!
Guido Persichino profile picture
@surfer101 This is a crisis created by exogenous causes. When the virus power will fade, we'll see a general resumption. In Italy too, at least I hope, since we are in deep trouble: both Moody's and DBRS will update their rating on May 8. Let's cross our fingers!
Take it that with risk grade ,higher # = higher risk , if so disagree with rating for BME which is a very low risk CEF in my opinion . Sure that you know by now that ETO just cut its next [May} dividend by 21% . Also am surprised that other than BME you have no option /dividend income funds which Blackrock , Eaton Vance & Nuveen have some good ones .I also use THQ & GRX to round out this good defensive sector with BME. Have many of your funds in my income portfolio & am hoping for no more cuts to appear in the C&S , J.Hancock , or other Eaton Vance funds that you have listed, as many of those are leveraged which is causing some of these problems, depends how long this economic shutdown persists.
ETO - with it’s dividend cut, hopefully the price will drop so I can add to my position.
Guido Persichino profile picture
@jbish133 Yes, ETO cut distribution the day after I submitted my piece. Anyway, at my load price it still gives a respectable 9.26%.
Guido Persichino profile picture
@hingroyield I agree with you, dividend cuts depend on how long this economic shutdown persists and how things will develop.
Emerald profile picture
@Guido Persichino, thanks for the update. I have looked at many of these funds and am long RNP, PCI and a few Pimco state muni CEF's. Cheers
Guido Persichino profile picture
@Emerald Thank you. As you have seen, I decided to focus on PDI an not on PCI.
HereIncome profile picture
I was just going to write a comment on PCI so decided to do it here. Any reason why PCI is so discounted compared to PTY / PDI and why you have selected PDI instead? I’ve got PTY and PCI in my portfolio. I love those portfolio updates of yours - and the uniqueness of the size of your allocation to CEFs. Thank you!
Guido Persichino profile picture
@HereIncome Sorry, no idea for the different discount. 6 years ago I read some articles about the two siblings PCI/PDI, and decided to go for PDI. Since then I never thought about changing, but it worked well, anyway.
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