Bought GUT

[rsingh6675]

Does anyone know if I made a mistake buying GUT @ $6.37?
Thanks.

 

[haha]

Does anyone know if I made a mistake buying GUT @ $6.37?
Thanks.

Re-post in a few years, and I will tell you then.

 

[NW-Bound]

Why, that's "gutsy" of you...

Actually, I never heard of this. Just look it up: Gabelli Utility Closed Fund. Is this the same Mario Gabelli? Happened to watch him on a TV show many years ago, touting a stock. So, I bought a few $K. Darn company went bankrupt due to asbestos lawsuits. Of course it was my fault, but I still hold a grudge against him.

 

[rsingh6675]

Yep

I think it is same Mario Gabelli. They pay about 10% dividend.

 

[NW-Bound]

I think it is same Mario Gabelli. [-]They pay about 10% dividend.[/-]

Just kidding, of course. The dividend looks interesting, but how do they get that? I own ETFs like XLU and "Holders" like UTH in the past, but they pay something like 4% to 5%. Interesting... I may check this GUT out later.


PS. I just glanced at the fund summary provided by my brokerage Web site. It said

The Fund's primary objective is long-term growth of capital and income. The Fund will invest 80% of its assets in common stocks and other securities of foreign and domestic companies involved in providing products, services or equipment for the generation or distribution of electricity, gas and water, and telecommunications services or infrastructure operations.​

So, could it be that the 10% payout includes cap gains or other investment gains and is not just a pass-through of the dividends like XLU and UTH? I mean I was confused by the word Utility in this closed-end fund and tried to compare it to XLU and UTH, which was like comparing apples and oranges. Sorry.

 

[Htown Harry]

rsingh, it appears you may have overlooked one, and perhaps two, of the traps waiting for closed end fund investors.

see the breakdown of the dividends here: CEFConnect - Brought to you by Nuveen Closed-End Funds

Trap #1 - most of that dividend is a return of your own money, made to reach a "managed distribution" percentage that exceeds the dividend and cap gains income from the holdings. Approximately 90% of the dividend is a return of capital.

Trap #2 - the fund is selling at a 20% premium, meaning the sales prices exceeds the NAV of the holdings by a very significant margin.

I'd treat this as a speculative trade opportunity, not as a long-term investment.

 

[traineeinvestor]

Trap #2 - the fund is selling at a 20% premium, meaning the sales prices exceeds the NAV of the holdings by a very significant margin.

I'd treat this as a speculative trade opportunity, not as a long-term investment.

why on earth would someone pay a 20% premium over NAV for something which mostly invests in other listed securities? Surely you could just buy a selection of the fund's largest positions? And avoid the management fee and other expenses in the process?

You would have to have a huge belief in the manager's ability to justify investing in this.

Am I missing something?

 

[Htown Harry]

Am I missing something?

Not really. Investing in a CEF of this type is a bet on a sector's fundamentals, overlaid with some leverage, a bet on management and a wish / prayer about the marketplace's [-]gullibility[/-] enthusiasm for the dividend as reflected in the premium or discount.

A 20% premium is actually on the low side over the history of this fund. CEFA - Closed-End Fund Association

GUT is mentioned in this November blog entry on evaluating CEF's based on their historical premium or discount. Attractive Entry Points for Closed-End Funds FMO and ETJ - Seeking Alpha The phrase "dead cat bounce" is used.

Definitely not my cup of tea, but Rsing may make a few bucks if he watches the price like a hawk and manages to exit at the right time.

 

[LOL!]

Am I missing something?

You are missing rsingh6675's one-track investing philosophy: high dividends no matter what.

If you look at rsingh6675's posts, you will see what I mean.

I think one could do extremely well by shorting everything that rsingh6675 says he buys.

 

[Htown Harry]

I think one could do extremely well by shorting everything that rsingh6675 says he buys.

 

[jimnjana]

Does anyone know if I made a mistake buying GUT @ $6.37?
Thanks.

Yes, I think the fact that it is trading over NAV and is reducing distribution kept me away from it. But I did buy GABUX, same manager, similar investments. I think to say that these funds (Gabelli income oriented utility funds) aren't for everybody is quite true. IMO they are an alternative to junk bond funds, except they are primarily invested in common stock of large cap utility and other dividend paying stocks. 90% or more of the distribution is tax free return of capital. To some extent, new investors help sustain the distro.

 

[Nords]

To some extent, new investors help sustain the distro.

Ah, the "Ponzi dividend" model...

 

[jimnjana]

Ah, the "Ponzi dividend" model...

To some extent...very fair assessment for GUT, especially given that they have cut distribution. GABUX and the family of open end mutual funds to a lesser degree IMO. These funds are invested in solid dividend paying stocks, majority of which are utilities. Return of Capital portion of distribution seems to be made with proceeds of stock trades. Majority of dividends received by the fund are reinvested for the most part. Funds are low turnover (12% or so). Funds offset gains with losses and pays taxes on dividend income not passed on to investors.