Only a fool or a brokerage firm would want this to convert over to open end. You really have no idea do you? The expense ratio is going to increase by at least 120% I can guarantee you. With a current expense ratio of 0.67% it makes sense because the upside is around 5 or 6% dividends. But when it becomes a mutual fund, management fees will soar. First, your shares will be converted to adviser shares which means you will be paying some loser 1% each year for doing nothing. Second, you will pay 12b-1 fees. I estimate the expense ratio will soar to at least 1.5% and that is conservative. Do the math and see what your total return will be. The only reason why that asset management firm wanted this conversion was so it could charge 1% annually to its customers who held the fund with them. Right now they aren't making any money off of fees unless the fund is included in a wrap account which is not likely. Bond mutual funds are a joke. Fees are way too high and eat up too much of your gains over time. Only a fool would keep this sucker. I will be selling in Feb.
Wrong - check again before you post. They were paying .04 cents until Aug 2013. I said earlier this year but it was a year + before that even. That's a 12 1/2 % haircut.
Well, I bought ACG in 2013 because it was trading at a 15% discount and was hoping they'd go open or just liquidate; I didn't mind collecting the 5% distribution while I was waited. The high distribution rate was basically a reflection of said discount and that they hold a fair amount of riskier junk bonds, sovereign debt, futures/CDS and MBS in their portfolio; ACG is only about 2/3 treasuries and the remaining third is "reaching for yield" stuff. You are deluding yourself if you think they could pay 5% yield on just US treasuries.
There are many ETFs and funds that hold identical treasuries with expense ratios that are 50 bps less than ACG. And some junk/foreign bond funds with similar ERs. I don't like paying 65 bps to manage a portfolio of mostly treasuries but the discount made it attractive. Now that that's narrowed, I don't see a reason to hold ACG when there are cheaper alternatives out there. There's also ~$100MM in unrealized gains that will pass through if they jigger their portfolio around to deal with redemptions.
Yup - diamond alright. It was like pulling teeth to get this to go to open ended. I'm outta here to bigger and better run closed ends. Nice divvy cut late last year too.
Sentiment: Strong Sell
We've been clamoring to go open-end for a decade. The new format may change payout schedule from monthly to quarterly but besides that I can't see why long term holders would exit a steady, well managed portfolio. I'm in some other income CEF's that recently blew up....trust me, ACG is one of the diamonds
Ok, have read everything and it is as I originally understood. This fund is doing two things. First, converting to open end status. Second, merging with another AB fund to consolidate into the "AB Income Fund". There will be a .75% redemption fee imposed for selling shares during the 3 month period AFTER the deal closes which is scheduled for early 2016. There is a vote in Feb-16. So, NAV is presently $8.28 per www.cefa.com. That means there is still upside to that level between now and when the deal to convert takes place. Might wait to sell but sell I will. Too much uncertainty and I don't like the fact that it is converting to open end status. I think the monthly dividend will be history. Better opportunities await. Good luck to all.
I'm not talking about the expense ratio. The amount management collects as a fee is based on AUM and if the current shareholders sell after open ending, the aggregate management fees will decrease, ie. less revenue for them. I'm not sure why you think I said the annual expense ratio was going to decrease. If anything it will probably go up because it is more expensive to run an open ended fun than a CEF.
ACG holds other fixed income investments; it's not just treasuries. So you may have felt that it was "safe" but it really is just more diversified than a typical US treasury fund. Also, when a closed end fund trades at a discount, the distribution is amplified. Some CEFs return capital to shareholders. While this isn't "yield" it is part of a distribution.
When it goes open end it depends what is in their portfolio but if don't change anything, the yield will be lower than it is now. Even without open-ending, if they keep the same "dividend" the distribution rate will drop because it will now be based on a higher share price.
Thanks. Not looking for upside but liked the steady monthly dividend of the old fund. Do you think they will continue the dividend stream going forward?
AB fund is a new open ended mutual fund that is proposing exchange all assets and liabilities of ACG for "advisor" shares in the new open ended fund. You buy and sell mutual fund shares at their NAV. There is a 3 month 0.75% redemption fee on the new shares to incentivize people to stick with the new AB fund (otherwise, there will be a flood of sales after the conversion). FYI, AB fund and ACG are both managed is also managed by Alliance Bernstein.
As of today, ACG currently trading at about a 3% discount to the NAV (down from a 9.9% discount yesterday). This discount reflects the time-value of money, uncertainty of shareholder approval, illiquidity, etc.
There isn't much upside here. It's not like someone is going to come along and try and buy the assets for more than the NAV.
Thank you for clarifying. I read the press release and took it to mean that it was also merging with another AB fund. So, is it merging and going open ended at the same time? Regardless, market conditions aside, should it theoretically stay around these levels with a similar dividend to its old life? Can it be sold without penalty or did I see there is a 3 month additional fee if you sell now?
The fund is going open ended, which means it will trade at its net asset value rather than the ~10% discount it has traded over the past few years.
Management fees will decrease if shareholders decide to redeem causing the AUM to decrease. As a closed-end fund, there is no way to redeem shares, so AUM isn't affected by shareholders buying/selling.
It's kind of a staid "Steady Eddy" equity that people buy and forget about due to it's low beta and the fact that nothing ever happens here; just a reasonable and dependable divvy. No clue as to the market enthusiasm, but I like it! GLTA
This board used to have such a knowledgeable group of posters back in the day.
Can anyone explain what today's proposed ownership change means, and why the market is endorsing it with such enthusiasm?