Thoughts on Closed-End Funds for Income

[Sig]

I am considering shifting a portion of assets around in the next year or two for passive income generation. I am thinking about getting into some CEF's that employ covered call strategies as one option. Assuming I am not buying in at a NAV premium, are there other gotchas to a fund like 'ETY' (as an example)? Products like ETY appear to keep tax complications in check and hold quality names. I haven't ventured down the CEF path before and am curious as to the experiences of y'all

 

[sahtt]

I am considering shifting a portion of assets around in the next year or two for passive income generation. I am thinking about getting into some CEF's that employ covered call strategies as one option. Assuming I am not buying in at a NAV premium, are there other gotchas to a fund like 'ETY' (as an example)? Products like ETY appear to keep tax complications in check and hold quality names. I haven't ventured down the CEF path before and am curious as to the experiences of y'all

When you get a specific plan with specific securities let me know. I am not an expert on all their features but I trade these at work.

There are several very careful considerations you need to be aware of. There are tricks with closed end funds that allow the managers to slowly decay the fund's value, which often results in a fund having an unexplainable "favorable" nav. As you are already probably aware, the degree to which a fund is below it's nav can always increase. Without number crunching, with volatility at many month lows, it's going to be difficult to lock in those call prices in an efficient manner (premium is not high as far as I know).

I don't hold any of these for more than a few days so my outlook/risk considerations are different. Closed end funds are a sort of mysterious asset class, even among 'professionals'.

 

[Vega$ NSX]

Ok, so I'll be honest, I have no clue to what you guys are speaking about. All these terms and acronyms are completely foreign to me. So, my question to you financial gurus (as two guys I've already seen know what they are talking about) is this:

What kind of coin are you guys banking by doing all this financial googly moogly in relation to how much time you spend doing it? The reason I’m asking is that I currently spend more of my time towards my job which nets me a great “rate of return” for my time invested in it. But once I bank a large sum of money, I don’t do much with it. I mean, I invest it wisely, but I don’t squeeze every once out if it like I know some people can. I’m wondering if it would be worth it to spend a little less time with my work and more time beefing up my financial acumen and do a little more micro-management with my money. However, it would have to have a really good return on money for time investment as my current job is pretty good. I’m just trying to get a rough order of magnitude to see if it’s worth perusing or not. TIA.

 

[sahtt]

Ok, so I'll be honest, I have no clue to what you guys are speaking about. All these terms and acronyms are completely foreign to me. So, my question to you financial gurus (as two guys I've already seen know what they are talking about) is this:

What kind of coin are you guys banking by doing all this financial googly moogly in relation to how much time you spend doing it? The reason I’m asking is that I currently spend more of my time towards my job which nets me a great “rate of return” for my time invested in it. But once I bank a large sum of money, I don’t do much with it. I mean, I invest it wisely, but I don’t squeeze every once out if it like I know some people can. I’m wondering if it would be worth it to spend a little less time with my work and more time beefing up my financial acumen and do a little more micro-management with my money. However, it would have to have a really good return on money for time investment as my current job is pretty good. I’m just trying to get a rough order of magnitude to see if it’s worth perusing or not. TIA.

Vegas, you only have to be good at one thing. You have found that. Do enough of your own homework to know whether or not you are being screwed and leave the rest to a guy who's one good thing is managing money. The most important part is the ability to understand risk. If that ends with 50% of your money in staggered CD's, that's superior to handing your money over to a guy in an Armani suit who is doing things you don't understand that definitely used* to work, but past performance is not indicative of future results.

 

[Sig]

When you get a specific plan with specific securities let me know.

ETY is one specific fund I am looking at that uses a buy/write strategy... it's an Eaton Vance product. It's full list of holdings is hard to come by as I don't have a position in the fund and I don't know of sources that publish CEF holdings. That said, as far as I know... the fund historically has held positions in dividend paying stocks like Exxon, Microsoft, Pepsi, Walmart, McDonalds, Nestle,Google, IBM, and Hewlett Packard. Ultimatley they collect they dividends and the call write revenue to pay out their dividends.

There are plently of pure dividend capture CEF's like Alpine's 'AOD' out there, but those are not as interesting to me as those employing covered calls as a primary income generator.

 

[SilverStone05]

Why don't you buy the underlying and write the cc's yourself?

Then you dont' have to pay the fund fees...just the transaction costs. :tongue:

 

[HIJACKER]

Ok, so I'll be honest, I have no clue to what you guys are speaking about. All these terms and acronyms are completely foreign to me. So, my question to you financial gurus (as two guys I've already seen know what they are talking about) is this:

What kind of coin are you guys banking by doing all this financial googly moogly in relation to how much time you spend doing it? The reason I’m asking is that I currently spend more of my time towards my job which nets me a great “rate of return” for my time invested in it. But once I bank a large sum of money, I don’t do much with it. I mean, I invest it wisely, but I don’t squeeze every once out if it like I know some people can. I’m wondering if it would be worth it to spend a little less time with my work and more time beefing up my financial acumen and do a little more micro-management with my money. However, it would have to have a really good return on money for time investment as my current job is pretty good. I’m just trying to get a rough order of magnitude to see if it’s worth perusing or not. TIA.

I'm with you on this. Aside from basic investments and doing everything myself and maxing out 401K, I'm limited past that other than various stocks I've been involved with.

I could clearly use an education on some fresh ideas on where to invest right about now.

 

[sahtt]

ETY is one specific fund I am looking at that uses a buy/write strategy... it's an Eaton Vance product. It's full list of holdings is hard to come by as I don't have a position in the fund and I don't know of sources that publish CEF holdings. That said, as far as I know... the fund historically has held positions in dividend paying stocks like Exxon, Microsoft, Pepsi, Walmart, McDonalds, Nestle,Google, IBM, and Hewlett Packard. Ultimatley they collect they dividends and the call write revenue to pay out their dividends.

There are plently of pure dividend capture CEF's like Alpine's 'AOD' out there, but those are not as interesting to me as those employing covered calls as a primary income generator.

This is one issue regarding closed end funds. It's almost impossible to figure out what the holdings are in what proportion besides when they report (say quarterly). One bit of information you might find interesting is that I spent over 100 hours and x,000$ trying to figure out a way to calculate the NAV either from the underlying holdings or from some source in real time. I was not successful. What you suggest does take a lot less manual labor and effort than doing it manually, but as I previously mentioned, the fees can decay the nav indefinitely.

Regarding ETY specifically, as you are aware of, it's gone from a double bottom at 8 to 14$ a share. I would not buy it above 13 personally; just hang some limit orders down in the book if you are doing this yourself. Note this does not necessarily have the same guidelines and principles as most CEF's I'm familiar with (http://www.site-by-site.com/usa/cef/international_equity.htm#CEFs is a good general site the public can use for CEF's in particular and http://www.quantumonline.com/search.cfm is good for most obscure equity securities).