Forbes Article - 9% Dividend Portfolio w/ Closed End Funds?

[philly17]

Has anyone seen this Forbes article suggesting the following portfolio for a 9% yield with a portfolio of five CEF's?
Thoughts?

Must be tremendous risk associated to get that type of yield.


https://www.forbes.com/sites/michae...come-portfolio-for-95-dividends/#1fbe78697f77

 

[aja8888]

Has anyone seen this Forbes article suggesting the following portfolio for a 9% yield with a portfolio of five CEF's?
Thoughts?

Must be tremendous risk associated to get that type of yield.


https://www.forbes.com/sites/michae...come-portfolio-for-95-dividends/#1fbe78697f77

Too bad one can't go back in time and invest $300K in those funds and sit tight. But one can't rely on past performance to predict future results!

 

[Freedom56]

Has anyone seen this Forbes article suggesting the following portfolio for a 9% yield with a portfolio of five CEF's?
Thoughts?

Must be tremendous risk associated to get that type of yield.


https://www.forbes.com/sites/michae...come-portfolio-for-95-dividends/#1fbe78697f77

Beware of any financial advice from contributors to Forbes who are paid promoters. You only need to look at past performance to see what kind of a disaster these CEFs are.

GAB

https://www.cefconnect.com/fund/GAB

Inception Date: 8/21/1986
Inception Share Price: $10.00
Inception NAV: $9.35

Current price: $5.23
Current NAV: $5.08

ASG

https://www.cefconnect.com/fund/ASG

Inception Date: 3/14/1986
Inception Share Price: $10.00
Inception NAV: $9.35
Current rice: $7.38
Current NAV: $6.78

 

[njhowie]

Too bad one can't go back in time and invest $300K in those funds and sit tight. But one can't rely on past performance to predict future results!

Exactly. The author has such a fabulous article, but did he do 20 years ago what he is advising others to do now? Of course not - otherwise he wouldn't be wasting his time writing articles like this for minimum wage.

 

[Aerides]

If I met any finance person who opened with this talk, I'd run away, and consider them the next Madoff:

"I’m going to show you a dividend portfolio that gets you an incredible 9.5% payout—and you won’t have to take on stomach-churning risk (which, let’s face it, no one’s keen on doing now) to get it.

Imagine what a 9.5% dividend could mean. Take a $300,000 portfolio and you’ve suddenly got $2,375 in passive monthly income. "

Between the % claims and the key word of passive income, it's a joke.

 

[RobbieB]

Yup. If it sounds too good to be true...

 

[WyomingLife]

Exactly. The author has such a fabulous article, but did he do 20 years ago what he is advising others to do now? Of course not - otherwise he wouldn't be wasting his time writing articles like this for minimum wage.

+1

Nassim Taleb perhaps would say the author doesn’t have “skin in the game”: https://youtu.be/0Uc4DI-BF28

Taleb’s “Antifragile” is one of the most influential books I have read in the past decade

 

[Out-to-Lunch]

I am NOT an expert on this, but I am under the understanding that high payouts from closed-end funds are generally just return-of-capital. Cf. https://www.nuveen.com/en-us/thinking/closed-end-funds/understanding-return-of-capital

 

[jimnjana]

Beware of any financial advice from contributors to Forbes who are paid promoters. You only need to look at past performance to see what kind of a disaster these CEFs are.

GAB

https://www.cefconnect.com/fund/GAB

Inception Date: 8/21/1986
Inception Share Price: $10.00
Inception NAV: $9.35

Current price: $5.23
Current NAV: $5.08

ASG

https://www.cefconnect.com/fund/ASG

Inception Date: 3/14/1986
Inception Share Price: $10.00
Inception NAV: $9.35
Current rice: $7.38
Current NAV: $6.78

Total return is actually not bad for these two funds over the last 10 years...over 10% annually for GAB and over 12% for ASG.

 

[Freedom56]

Total return is actually not bad for these two funds over the last 10 years...over 10% annually for GAB and over 12% for ASG.

The author of the article is promoting these and buy and hold. The distributions have consistently declined over time and will likely decline in the future. The capital invested back at the time when this fund was created is below what it is today. Consider that in 1986 CD rates were over 10%. If you just rolled over 5 year CDs since 1986 versus investing in these funds, you not only would have all your original capital, but the returns would be far superior.

Consider the Gabelli fund objectives:

"Investment Objective
To achieve long-term growth of capital primarily through investment in equity securities, with income being a secondary objective. The Fund will invest at least 80% of its assets in equity securities. The Fund may invest, from time to time, in shares of other investment companies. It may purchase or write call or put options on securities or indices. It may invest up to 10% of its net assets in securities, for which the markets are illiquid. The Fund invests in various industries, including food and beverage, financial services, energy and utilities, telecommunications, healthcare, diversified industrial, consumer products, publishing, entertainment, cable and satellite, hotels and gaming, and equipment and supplies."

So after 34 years, the investment capital is cut in half? Is that what equity markets did over the past 34 years? As a minimum these funds should have been able to hold the NAV at inception which is a very low bar.

 

[Go-NoGo]

Beware of any financial advice from contributors to Forbes who are paid promoters. You only need to look at past performance to see what kind of a disaster these CEFs are.

GAB

https://www.cefconnect.com/fund/GAB

Inception Date: 8/21/1986
Inception Share Price: $10.00
Inception NAV: $9.35

Current price: $5.23
Current NAV: $5.08

ASG

https://www.cefconnect.com/fund/ASG

Inception Date: 3/14/1986
Inception Share Price: $10.00
Inception NAV: $9.35
Current rice: $7.38
Current NAV: $6.78

Well as the old adage goes, he is promising "Return on capital, but not return OF capital"

 

[Montecfo]

I did not investigate these particular funds, (though Liberty All-star has been out there forever). However, likely these are heavily leveraged and that is how they deliver high yields, though some may also be ROC. Now, in this low rate environment I think the leverage can make sense. But these yields represent a red flag in my opinion.

CEFs can allow you to buy assets you like at a discount, and they do not need to hold funds against redemptions. The leverage adds to volatility so good to buy on a large marketwise selloff.

 

[OldShooter]

Has anyone else besides me concluded that the Forbes brand has been debased? I used to respect the magazine and even subscribed for a number of years, but most of the Forbes-branded articles I now see on the internet seem to be the same sort of random junk available everywhere.

 

[Chuckanut]

Has anyone else besides me concluded that the Forbes brand has been debased? I used to respect the magazine and even subscribed for a number of years, but most of the Forbes-branded articles I now see on the internet seem to be the same sort of random junk available everywhere.

I agree.

Years ago I subscribed. Very interesting articles. I remember one issue in the 1970's with a cover photo showing a golden ice cube melting down to nothing. The gist of the article was throwing you money at risky investments is a lousy way to protect it from the high inflation of that time. They were right and they saved me from making a very big newbee mistake. Their annual mutual fund ratings were required reading.

Today? Not so good, IMO.

 

[Montecfo]

OldShooter-

I agree, like most print publications it has gone downhill. I do still subscribe myself as I get a few ideas there from time to time.

 

[braumeister]

Back when Malcolm was collecting eggs, I enjoyed the magazine and subscribed for years. Haven't even seen one in a long time.

Here's a short rundown on his obsession with Fabergé eggs:

https://www.forbes.com/sites/abrambrown/2017/09/19/forbes-faberge/#7f5cce4f4ccf

 

[Closet_Gamer]

You can always find assets yielding 9%...the question is whether they can keep yielding 9%!

 

[jimnjana]

The author of the article is promoting these and buy and hold. The distributions have consistently declined over time and will likely decline in the future. The capital invested back at the time when this fund was created is below what it is today. Consider that in 1986 CD rates were over 10%. If you just rolled over 5 year CDs since 1986 versus investing in these funds, you not only would have all your original capital, but the returns would be far superior.

Consider the Gabelli fund objectives:

"Investment Objective
To achieve long-term growth of capital primarily through investment in equity securities, with income being a secondary objective. The Fund will invest at least 80% of its assets in equity securities. The Fund may invest, from time to time, in shares of other investment companies. It may purchase or write call or put options on securities or indices. It may invest up to 10% of its net assets in securities, for which the markets are illiquid. The Fund invests in various industries, including food and beverage, financial services, energy and utilities, telecommunications, healthcare, diversified industrial, consumer products, publishing, entertainment, cable and satellite, hotels and gaming, and equipment and supplies."

So after 34 years, the investment capital is cut in half? Is that what equity markets did over the past 34 years? As a minimum these funds should have been able to hold the NAV at inception which is a very low bar.

so why are you comparing cds to equity funds? Total return includes capital appreciation plus distributions. I do agree with you that holding nav is a quality to look for in a cef. These funds appear to have been decent sources of tax advantages income for long term holders.

 

[bigcmagor]

Has anyone else besides me concluded that the Forbes brand has been debased? I used to respect the magazine and even subscribed for a number of years, but most of the Forbes-branded articles I now see on the internet seem to be the same sort of random junk available everywhere.

Forbes lost me as a subscriber about 15 years ago when they published an issue establishing $40mm as the threshold for being "somewhat rich". Another article featured a freshly minted college graduate couple starting out with $1.6mm in net worth. I told them to cancel my subscription because I was clearly not worthy of their readership ranks.

 

[UnrealizedPotential]

Actually I have owned PTY before and yes it is possible to get that 9.5 % pretty consistently. I can't say about the other investments mentioned in the article . That said, I wouldn't want to take the risk necessary to get that kind of yield.

PTY has some dramatic swings in prices at times . I prefer being more diversified and will take a lower yield in exchange.

 

[Hamster]

I am not an expert on CEFs and I am definitely not recommending these particular funds but I do think CEFs can be reasonable investments. I own a few now and have owned ones in the past and done well with them. Not a big percent of my assets, but made me a few dollars.

I think this particular article is incomplete and poorly done, however, and I would disregard anything it contains for that reason. There is no mention that several of his featured funds include ROC in their high yield. Also many CEFs, most I believe, use leverage to boost results. Whether you think that is a good thing or not, it is definitely an important feature of these investments and one the author never even mentions. Another key feature that attracts people to CEFs is that many can be purchased well below NAV. This is another issue never really discussed in the article, something which is especially odd since several of the recommended funds sell for well above NAV - GUT actually sells for more than twice NAV, which certainly seems the sort of thing worth disclosing.