Saturday, April 15, 2017

Closing Two Closed-End Funds

I invested in closed-end funds (CEFs) in my Scottrade account before consolidating my investments and bringing them into the DivGro fold.

Aside from the attractive yields on offer, I liked having a few target holdings for Scottrade's flexible reinvestment program, or FRIP. Much like DRIPs, Scottrade's FRIP allows investors to collect dividends in a special account and reinvest the money periodically.

Now that I've moved to Interactive Brokers, at least one of the reasons for holding onto these CEFs has disappeared. Of course, giving up those higher yields is difficult, so I decided to close only two of the three CEFs I owned.

About CEFs


A CEF is a publicly traded investment company that raises capital through an initial public offering (IPO). The fund issues a fixed number of shares in the IPO, after which shares in the fund are traded on a stock exchange just like stocks.

The share price of a CEF is determined entirely by market demand, so shares can trade below, at, or above net asset value. You can look up the net asset value of a CEF and so determine if the fund is trading at a discount or premium. CEF Connect is a comprehensive (and free) resource for CEF investors.


NEA


In February 2016, I transferred 350 shares of the Nuveen Premium Income Municipal Fund 2, Inc (NPM) to DivGro. Subsequently, the fund was reorganized and renamed to the Nuveen AMT-Free Quality Municipal Income Fund (NEA). After the reorganization, the fund's monthly dividend was cut by 9%, from 6.8¢ to 6.2¢ per share.

As a result, I decided to close my position:

Transaction Summary


    2015-12-21 Bought 350 shares of NPM at $14.1961 per share:$4,968.64
2016-02-01 Dividend on 350 shares at 7.20¢ per share: $25.20
2016-03-01 Dividend on 350 shares at 7.20¢ per share: $25.20
2016-04-01 Dividend on 350 shares at 7.20¢ per share: $25.20
2016-05-02 Dividend on 350 shares at 7.20¢ per share: $25.20
2016-06-01 Dividend on 350 shares at 7.20¢ per share: $25.20
2016-07-01 Dividend on 350 shares at 6.65¢ per share: $23.28
2016-08-01 Dividend on 350 shares at 6.65¢ per share: $23.28
2016-09-01 Dividend on 350 shares at 6.65¢ per share: $23.28
2016-09-13 Received 359 NEA shares for 350 NPM shares: $0.00
2016-09-28 Cash in lieu of fractional share: $13.28
2016-10-03 Dividend on 359 shares at 7.23¢ per share: $25.96
2016-11-01Dividend on 359 shares at 6.80¢ per share: $24.41
2016-12-01 Dividend on 359 shares at 6.80¢ per share: $24.41
2016-12-30 Dividend on 359 shares at 6.20¢ per share: $22.26
2017-02-01 Dividend on 359 shares at 6.20¢ per share: $22.26
2017-03-01 Dividend on 359 shares at 6.20¢ per share: $22.26
2017-03-14 Sold 359 shares at $12.9507 per share: $4,649.29
2017-04-03 Dividend on 359 shares at 6.20¢ per share: $22.26
Capital loss:$306.07
 Dividends received: $359.66

Commissions/fees/taxes:$8.64

Net gain:$44.95

I made a small net gain of 0.91% on the original amount invested, or 0.74% annualized.

DivGro's projected annual dividend income (PADI) decreases by $267.10.

EXG


transferred my position in the Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) to DivGro in March 2016. The fund pays monthly dividends and offers an attractive yield (currently 10.45%).

Unfortunately, the fund reduced its dividend in March this year and, while the yield is still very attractive, I don't like dividend cuts because it creates a precedent... companies that cross the line will not hesitate to do so again.

Transaction Summary

\
    2013-10-09 Bought 210 shares of EXG at $9.4483 per share:$1,984.14
2013-10-31 Dividend on 210 shares at 8.13¢ per share: $17.07
2013-11-29 Dividend on 210 shares at 8.13¢ per share: $17.07
2013-12-31 Dividend on 210 shares at 8.13¢ per share: $17.07
2014-01-31 Dividend on 210 shares at 8.13¢ per share: $17.07
2014-02-28 Dividend on 210 shares at 8.13¢ per share: $17.07
2014-03-31 Dividend on 210 shares at 8.13¢ per share: $17.07
2014-04-30 Dividend on 210 shares at 8.13¢ per share: $17.07
2014-05-30 Dividend on 210 shares at 8.13¢ per share: $17.07
2014-06-30 Dividend on 210 shares at 8.13¢ per share: $17.07
    2014-07-02 Bought 228 shares of EXG at $10.3286 per share:$2,354.92
2014-07-31 Dividend on 438 shares at 8.13¢ per share: $35.61
2014-08-29 Dividend on 438 shares at 8.13¢ per share: $35.61
2014-09-30Dividend on 438 shares at 8.13¢ per share: $35.61
    2014-10-03 Bought 62 shares of EXG at $9.9483 per share:$616.79
2014-10-31 Dividend on 500 shares at 8.13¢ per share: $40.65
2014-11-28 Dividend on 500 shares at 8.13¢ per share: $40.65
2014-12-31 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-01-30 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-02-27 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-03-31 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-04-30 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-05-29 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-06-30 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-07-31 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-08-31 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-09-30 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-10-30 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-11-30 Dividend on 500 shares at 8.13¢ per share: $40.65
2015-12-30 Dividend on 500 shares at 8.13¢ per share: $40.65
2016-01-29 Dividend on 500 shares at 8.13¢ per share: $40.65
2016-02-29 Dividend on 500 shares at 8.13¢ per share: $40.65
2016-03-31 Dividend on 500 shares at 8.13¢ per share: $40.65
2016-04-29 Dividend on 500 shares at 8.13¢ per share: $40.65
2016-05-31 Dividend on 500 shares at 8.13¢ per share: $40.65
2016-06-30 Dividend on 500 shares at 8.13¢ per share: $40.65
2016-07-01Bought 112 shares of EXG at $8.6500 per share: $968.80
2016-07-29 Dividend on 612 shares at 8.13¢ per share: $49.76
2017-08-31 Dividend on 612 shares at 8.13¢ per share: $49.76
2016-09-30 Dividend on 612 shares at 8.13¢ per share: $49.76
2016-09-30Bought 112 shares of EXG at $8.7252 per share: $977.22
2016-10-31 Dividend on 724 shares at 8.13¢ per share: $58.86
2016-11-30 Dividend on 724 shares at 8.13¢ per share: $58.86
2016-12-30 Dividend on 724 shares at 8.13¢ per share: $58.86
2017-01-31 Dividend on 724 shares at 8.13¢ per share: $58.86
2017-02-28 Dividend on 724 shares at 8.13¢ per share: $58.86
2017-03-14 Sold 724 shares at $8.380095 per share: $6,067.19
Capital loss:$834.68
 Dividends received: $1,557.72

Commissions/fees/taxes:$10.41

Net gain:$712.63

I made a net gain of 10.33% on the original amount invested, or 4.51% annualized.

DivGro's PADI decreases by $706.33.

Conclusion


Getting rid of two high-yielding CEFs really hurts DivGro's PADI! In total, I wiped $973.43 off the table! Fortunately, I've already redeployed the cash and the damage is not as dire as it seems. I'll report on those replacement buys soon!

Thanks for reading! 

6 comments :

  1. Replies
    1. I like 'em too, but I don't like it when they just go and cut their dividends. I'm hanging on to NIE for now and even up'ed my position size after these sells.

      Delete
  2. Looks like Exg might be a decent one to own but generally I look at them and see sharp declining share prices. Haven't bought any yet. I do have Reits and BDC so don't really need the CEFs but I always keep the option open

    ReplyDelete
    Replies
    1. Hi Dividendsandhobbies -- there are some interesting CEFs out there, some with tax-advantaged investment goals. A 5% tax-free yield will feel more like 8% or so. However, one should always consider the NAV before buying and not pay a premium price. Also, consider the management fee. You don't want to pay too much. I'm also looking at ETFs that pay dividends, which is another option (although most of the ones I've seen don't yield all that much).

      Delete
  3. I think you made a great move.

    I was never able to make money with funds. No matter how long I held them they always showed a capital loss to me. Sometimes dividends helped to offset the loss but it was always a loss. Sometimes I could get out at break even.

    So I do not invest into funds (no matter whether they are CEF, mutual funds or ETFs). They were always a frustration.

    I believe, that you will do better with individual dividend growth stocks. They still require discipline and systematic approach but they will pay off. In my DGI portfolio all classic DGI stocks are up and most of them doubled in value. I have never seen this from CEF or mutual funds or ETFs).

    There are better fish in the pool than funds!

    ReplyDelete
    Replies
    1. Hi, Martin -- thanks for sharing your experiences with various funds. Looking at the transaction summaries for NEA and EXG, both include capital losses although I made small net gains when dividends are taken into account. So, this supports your conclusion about not investing in funds.

      On the other hand, my investment in NIE, the remaining CEF in my portfolio, is doing well. Its up 5% w/o dividends, and about 16% w/ dividends (11% annualized). I'm OK with keeping my shares and even increasing my investment (if at a discount to NAV) as long as NIE does not cut its dividend.

      I'm not particularly interested in expanding my fund holdings, except for the increased diversification it offers. Of course, it is debatable if I need more diversification when I already own 50 stocks across all sectors. Reducing risk is another potential benefit.

      As such, I've been looking at dividend growth ETFs and I've opened a position recently (so far unreported her at DivGro). I'm not 100% convinced that I'll expand into this area, though.

      Take care!

      Delete

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