I called Alpine's investor relations dept and they tell me all of their distributions come from income and that no part of the yield is "return of capital".  The chart seems to have bottomed and I thought this might be a good time to invest a bit with the idea of putting more in if the price slips a bit further.... but the 12% yield is both enticing and terrifying.  Can anyone tell me what I am missing here?

   Alpine also has CEFs AWP Global Re  and AGD Global div .. both with great yields ( or too good to be...etc... traps)??

   Would appreciate any insight.    Thanks.     Richardsok

 

Call them back and ask them if any part of the yield is 'Return Of VALUE' of your original principal when the total return of their investment equals less than their yield........:-)

t

The real "trap" was buying into the Alpine CEFs at IPO time at $20 per share. Those folks got their brains beaten out and most probably sold in 2007 for realization of tax losses.

The 12+% yield certainly is enticing, but AOD still trades at a premium of over 8%. Since inception the net asset value has actually lost a little more ground than the market price. They're down roughly 17-18%. I don't like buying CEFs at a premium.

AGD now trades at a unjustified, in my opinion, 15% premium, placing it strictly on my AVOID list, regardless of yield.

AWP does have a slight discount to NAV but has been trounced so severely since the ill-timed IPO that many past and potential future shareholders are gun shy. NAV down 30% and market price down 35% since inception just over a year ago. A lot of cheerleading went on for AOD and AWP on the message boards last year before their IPOs. We don't see too many cheerleaders on board now.

I don't see any compelling reason to buy any of the three at the moment. However, I have no insight into the future so don't place too much weight in what I write.

Having said that, and in the interests of full disclosure, I do own some AOD and AWP, bought last year amid the market turmoil. Together they comprise about 1.5% of my portfolio.  They have paid nice monthly distributions but as yet have not shown me that they are keepers. So, they remain on my watch list.

I think that when buying these very high distribution CEFs one needs to go against the grain in the market. Buy when when the CEFs are getting trashed and trading at historic discounts. Sell when the discounts disappear due to market price growth and lack of net asset value growth. In between, rake in the cash flow.

For example, how many here bought IGR in December when it tanked to double-digit discounts? Now that is has rebounded off its lows it is now amazingly at a slight premium despite management recently threatening a distribution cut. Go figure!

Best,

Steve
 

As has been noted above, Alpine includes as "income,"  harvested capital gains.  This is clearly pointed out in the footnotes to their financialdata, but is not investment income according tothe SEC or GAAP.  CG distribution is a direct hit on NAV and depending on when you bought the shares, can be a potentially taxable return of your own money.

As Steve points out, the key with most CEF is to buy only when there is a signfiicant discount to NAV.

Hi Steve-

 Any CEF's on your buy list??

Recently, Dick and Chamois mentioned EVV and BLW which, as you probably know, are selling at discounts  8% in one case and 6% in the other. Subsequently, I got a quarterly update from an independent broker who is well respected by friends of mine, and he is positive about short duration fixed income.

This fellow also thinks muni bonds represent a rare opportunity. However, as you know, most of the muni CEF's with high discounts are single state funds which people have been shying away from.

This same fellow is high on preferred stocks - and your timing was excellent in this regard. You and Dick and Chamois appear to be the consumate bargain finders.

I have several preferreds, but hard to find ones outside the financial area.

All the best,

Ed

Hi Ed,

I don't really have a "Buy" list for CEFs right now. Distributions have been getting reinvested into MLPs over the last few months.

However, there are a few CEFs on my short watch list which I'm looking to add to current holdings or initiate new positions. Almost all of these are equity positions though. In general I'm not a big fan of bond CEFs.

Muni bond funds are definitely interesting now, but I haven't followed any closely since I sold them all in 2006. I'm hopelessly behind the curve on researching that sector. I suppose I ought to quit moaning about it and start doing some DD. 

Anyway, the short list includes some CEFs with high discounts: BCF, GCS, TYN, IRR, and BGR. And I'm always looking to add small amounts to ETO and ETG on pullbacks.

BGR has an enormous amount of unrealized gains embedded in the net asset value so might be better for some to own in a tax-deferred account in case the fund starts to take profits on its winners. I find it funny that BGR, with its strong record of NAV growth, trades at a 15% discount. Might be due to its very low 4+% yield for a CEF. Yet, a number of BlackRock muni CEFs trade at whopping premiums.  For example, BKN with a 16% premium due to it's 6+% tax-free yield. Amazing how people will "pay up" like that.

Also on my watch list are the two Mexico funds MXE and MXF, both at big discounts. These two have a history of of "distractions" though. Dissident activists, "in-kind" tender offers, etc. Thus, more attention to SEC filings is needed here. I don't own either.

RAF is another one that might be a reasonable buy for someone with a long enough time horizon. RAF has been raked over burning coals since inception with incredible losses. Gotta believe that at some point in the future Asian real estate will flourish. The 17% discount is rather tempting. Tiny asset base and very low trading volume (illiquidity) are big negatives for this one.

The only debt funds on my list are two that I already own, ESD and CHW, and probably AWF. 

None of the above are recommendations, just some things that I'm looking at.

Best,

Steve 

Hello, Steve...

This is a little "off topic", but I note that you mention that you own ESD, as do I.  I'm wondering if you have any "insights" on the strength of EFL... moving to a rather largish premium in the past 8 days or so.  I "believe" I recall that they're hoping to "merge" ESD & EFL.  I find NO  news on either fund.

Rightly or not I sold EFL today and put the proceeds into additional ESD, which seems to be an exact mirror, at least on a country allocation basis. (BUT, trading at a substantial discount)

 Thanks...

 Jane s.
 

Hi Jane,

I wasn't aware of the run up in EFL but now that you mention it, wow! Almost +4% today on top of the action over the last week or so. Heavy volume too.

You probably made a good move by selling. This is what I was talking about earlier in this thread. Sell on the premium run up and move the proceeds to a discounted holding.The EFL market price has been moving very out of sync with the net asset value.  

With regards to the proposed merger of EFL into ESD, back in Feb the BoD of both funds approved the proposal.  Now it's up to a shareholder vote at the June 30th meetings.

More details are available in the N-14 filed March 28th.

Snipped:

A. Recent debt issuances by emerging market issuers have been overwhelmingly fixed-rate in nature, causing Legg Mason Partners Fund Advisor, LLC (“LMPFA” or the “Manager”), EFL’s and ESD’s investment manager, and Western Asset Management Company (“Western Asset”), EFL’s and ESD’s sub-adviser, to believe that adherence to an investment objective and investment policies that require 80% of EFL’s assets to be invested in floating-rate emerging market debt is both impractical to achieve and detrimental to EFL stockholders. In light of these developments in the markets for floating-rate emerging market debt securities and the beliefs of LMPFA and Western Asset, the Board of EFL believes the merger of EFL into ESD, a Fund that invests in a much broader range of emerging market debt securities, would benefit EFL stockholders by allowing them to continue to have exposure to emerging markets through a Fund with more viable investment strategies.

Best,

Steve 

Thank you, Steve, for your input and information. It will be interesting to discover "why" such a move to a BIG premium for EFL...

 jane s.
 

Bill,

My 1099 for AOD showed that in tax year 2007 about 95% of the dividends were characterized as QDI with the remainder being ordinary dividends. An Alpine representative confirmed these values.

Further confirmation that Alpine is not mixing and matching earned income and capital gains is that, in the case of AGD (AOD’s smaller sister fund), Alpine clearly distinguished QDI distributions from short and long capital gains in their 1099 data. I do not believe that Alpine would take a different approach in characterizing AOD’s distributions.

I’m sure that you’re right about Alpine’s verbiage of possibly mixing QDI with capital gains. Often, however, the lawyers build flexibility in their docs that never get utilized by the managers (fortunately).

Even though I own both AOD and AGD, I do own much more of AOD than AGD because Alpine’s dividend capture performance for AOD has been superior to AGD. I was particularly impressed by AOD’s end-of-the-year bonus of $0.54/share (100% QDI). With that sort of happy surprise, Alpine has earned my confidence. Overall, I believe that AGD had about 74% of its 2007 distributions characterized as QDI.

Some general comments:

I agree with Steve that it is unfortunate that AOD trades at a significant premium. If you like the fund’s tax advantage, buy it on dips.

IMHO, I do not expect that it will be priced at a discount in the near future.

AOD and AGD have not employed leverage, so you don’t have to worry about the APS issue.

AOD is a large fund and has fairly good liquidity.

David