Playing Distributions in Closed End Funds

It's a year end. And it's time when Closed End Funds (CEFs) are making their yearly distributions. Many of these funds also have dividend reinvestment plans for some investors.
Sometimes funds had a good year and distributions are significant. In this case, price of shares on the ex-distribution date goes down about the amount of the distribution. But, if fund has a dividend reinvestment plan, fund management has to buy back shared in the open market to make those distributions. Usually CEF just can't issue new shares, that's why they have to buy them back in order to make DRIP distribution.
I had some experience playing big distributions before. Usually you need to look at a drop of 5% or more, otherwise market noise kills any profit.
OK, this is the theory. I made my first practical move today: bought shares of Morgan Stanley India Investment Fund (IIF).
I'm going to sell shares when they recoup between 30% and 50% of the price drop.

Full disclosure: at the time of publication author had a long position in IIF. Positions can change any time.

Selling Some BAM

I sold a portion of my Brookfield Asset Management (BAM) position today.
There are several reasons.
First of all, stock is up a lot. Stock shot up more than 50% since it's yearly bottom in July.
Second, I'm starting to dislike BAM. Company missed last two quarters, it trades at almost 30 future PE and projected PEG is way over 2. I'm going to do more research and determine if I want to get rid of position completely. But reducing it now looks like a good idea.
Third. We are in a strong year end window dressing mode. It's a good time to sell.
Last but not least. This portion was bought long time ago at higher price. Selling it actually creates a tax loss, which isn't that bad to reduce tax profit for the year.


Full disclosure: at the time of publication author had a long position in BAM. Positions can change any time.

Financials Are Up: Boom or Short Covering?

Banks are up last couple of weeks. I'd be happy to believe Cramer, who said that it's a great boom in financials. But something else draw my attention.
Bank common stocks are up, right. At the same time, bank preferreds are down. Just couple of months ago we saw the opposite: common down, preferreds up. It was the time when all fixed income boomed, including preferreds.
There are several explanations for current action. Maybe Cramer is right and banks just joined the Santa rally. Maybe funds are unwinding the pair trade "short common, long preferreds". Or maybe we will see a bullish action in financials next year. I don't know, my crystal ball is not showing anything.
Time will tell, so far I'm not planning any actions.


Full disclosure: at the time of publication author had long positions in banks: GS, USB and in bank preferreds: PGF, BWF. Positions can change any time.

Playing AGNC

I sold part of my position in American Capital Agency Corp. (AGNC). I bought shares of this REIT to enjoy a huge, almost 20%, yield. Why did I sell it then?
Simple. In the last 5 quarters, price of the stock fell after ex dividend day more than the dividend itself. Quite unusual, and quite inviting pattern. I think I can make more money buying it after ex dividend date around $27 and selling in the range $29.50-$30 right before next ex dividend date.
Why is it happening? Don't know and don't care. As long as this arbitrage is working, I'm running it.

Full disclosure: at the time of publication author had a long position in AGNC.

Buying Back EAD

Bought back Wells Fargo Income Advantage Fund (EAD) yesterday..I sold it July and October, when it was much higher than now and traded at big (up to 5%) premium to the NAV. Now it's just above $9 and trades at a discount to NAV. With yield almost 10%, it looks like a bargain.


Full disclosure: at the time of publication author had a long position in EAD.

Adding to Intuitive Surgical Position

I pulled the trigger today. Added to my Intuitive Surgical (ISRG) position.
Stock was going down lately. When I sold part of my position last year at $308, my target price for buying back was at $260, near today's price. I have a feeling that it's near bottom. Fundamentals are great, with future P/E at 25 and PEG at 1.15.
Of course, I can always be wrong. If stock is going down more, I am a buyer.

Full disclosure: at the time of publication author had a long position in ISRG. Positions can change any time.