Close end funds

[Rasec]

What is the general opinion around CEFs?

Specially as we enter a bear market and appreciation is sort of a mirage, is the idea of an attractive 8-12% paid in dividends something that interests you guys or not really?

Every time I buy shares of JNJ, XOM or PG I keep thinking to myself that buying a CEF paying 9% would probably mean a better return in the medium/long term (who knows...).

An exhaustive list of CEFs out there:
http://www.dividend.com/dividend-stocks/...nd-equity/


Out of curiosity, right now I'm in ~ 50%/50% in terms of CEFS vs individual stocks, my CEF (EVT) is paying 9.40% while my basket of stocks is yielding 4.3%.

[EricL]

(09-23-2015, 03:31 PM)Rasec Wrote: What is the general opinion around CEFs?

Specially as we enter a bear market and appreciation is sort of a mirage, is the idea of an attractive 8-12% paid in dividends something that interests you guys or not really?

Every time I buy shares of JNJ, XOM or PG I keep thinking to myself that buying a CEF paying 9% would probably mean a better return in the medium/long term (who knows...).

An exhaustive list of CEFs out there:
http://www.dividend.com/dividend-stocks/...nd-equity/


Out of curiosity, right now I'm in ~ 50%/50% in terms of CEFS vs individual stocks, my CEF (EVT) is paying 9.40% while my basket of stocks is yielding 4.3%.

I believe you are comparing apples with oranges. CEF's have no consistent growth of income.

For example, according to FAST Graphs, EVT has a 9YR dividend growth rate of -0.2% and an annualized total return of 4.1% compared with 6.1% from the S&P. EVT did pay out 3X the income that the S&P did, but an investor lagged in total returns to the tune of over $3,000 on a $10,000 initial investment.

CEF's may have their time and place, but in my limited knowledge of them, I'd say they are more for people relying on investments for income than for investors looking for long term growth in their portfolio.

[Rasec]

Maybe I'm doing the math wrong,

Let's imagine a scenario, if you had put $10k in Sep 2005 (for a perfect 10 year scenario) in EVT at an 8% dividend (flat for easier calculations) you would have gotten: $21.589K, a total rate of return of 115.9% (forget taxes and inflation for the sake of the exercise).

To be honest I don't know how to calculate the same scenario for 10K in a SP500 index at the same 10 years plus dividends reinvested. I tried a bunch of calculators available online and all came back with different numbers

Please note I'm not advocating for CEFs or EVT in particular, I'm just trying to learn different motivations. I'm not even sure yet if I should sell my position in EVT and invest in my basket of stocks.

[cannew]

As with any investment, each must decide what their objectives are and what one feel good about.
Having said that I'd check very closely into the companies which make up the CEF. You don't get high yield without investing in high risk. All funds have fees and I imagine these are among the highest. Finally, I look closely at the distributions to ensure that ROC (return of Capital) is not what they may actually be giving you.

[ChadR]

With my limited experience with closed end funds, the high payout was usually a return on capital. The actual dividend percent was low. Most of what I got was return on capital and not actual dividends. I personally have no use for CEFs at the present time. If I was much older and needed the income, I would look more closely into them.

[Dividendsrule]

Rasec, check out low-risk-investing.com for total return figure with dividends reinvested. Looks like 6.9% per year for EVT. That page has been pretty accurate for my research...

Better than a sharp stick in the eye, but not anything to write home about.

[Rasec]

(09-24-2015, 01:59 PM)Dividendsrule Wrote: Rasec, check out low-risk-investing.com for total return figure with dividends reinvested. Looks like 6.9% per year for EVT. That page has been pretty accurate for my research...

Better than a sharp stick in the eye, but not anything to write home about.

Thank you! This is a great resource!!!

Assuming data is accurate, this is the end result for EVT vs a basket of JNJ, MMM and KO (just for fun):





On a particularly strong Bull market (2005-2015), these 3 stocks beat the CEF by a mile!

[Dividendsrule]

Precisely. And if you want a more averaged breakdown of what happened year to year with your CEF, you can throw EVT into dividend-stocks.com. That shows you that there was a huge distribution cut followed by a freeze in 2009. It also shows you how the share price fluctuated, so even with high yields, it was wonky enough to give a poorer total return than the dividend stalwarts you mentioned above. For a young guy like yourself who has years to retirement (I am also young), I don't see any reason to hold CEFs for the long term.
My impressions is they can be effective trading vehicles (people do well buying them under NAV and selling when they hit or exceed NAV- I am completely uninterested in that strategy).

[Davidgomes]

Closed-end funds issue a fixed number of shares which are listed on a stock exchange. They are expertly managed investment companies. Once released, the fund is not in the picture as for buying and selling of the shares. This is done in the open market. It views a variety of investment options like preferred stocks, common stocks, municipal bonds, high-yield bonds and foreign securities. The shares released are mostly common stocks.

[Rasec]

So now I have a big decision to make, EVT is getting close to my cost basis so I can opt to:

1) sell my entire position at cost and reinvest in a basket of stocks.
2) let it continue to pay the 9% in dividends every month (I can't lie, I love when the money lands) and DRIP.
3) let it continue to pay the 9% in dividends every month but not DRIP and use that cash somewhere else, my issue with this approach is that it will take time to compound an amount of cash large enough to be meaningful to reinvest in something else.