Some things never seem to change, and deceptive management of the Alliance Closed End Funds including ACG is one of them. As a long time investor in Alliance Closed End Funds including ACG and also GSF and SI before they were merged into ACG, I can tell you that these funds have all suffered severe loss of NAV and market value over the years as well as dividend cuts. One only has to go to Value Line and read the grapic and earnings history to see how this fund has performed over the last 10 years. As for the .84 cent per share dividend rate, the fund is only earning income at the rate of .74 cents, so shareholders can expect a cut in dividends before long. Alliance has a history of not paying dividends out of ROC(Return of Capital) for very long before they cut dividends.
Wow! Those two babies are at the extreme risk apex, but actually, I like MCIT as a risk investment better than ACG, since you are being amply rewarded, provided the revenue stream holds up as they buck the growing competition. I do not like most foreign investments where devaluations can bury you so that rules out AWF (although I have not looked at their portfolio to judge the risk.) I totally agree with your opinions on the LTCM debacle and related golden parachutes scandal, leveraged buy-outs, etc.
My own investment advice is basic: 90-100% stocks (your choice or use an S&P 500 index fund) up to age 55; 50% stocks and 50% bonds (25% short-term 2-yr T-bills and 25% GNMA 6-yr bonds outright or via funds) up to 65, or thereafter if you have a secure lifetime pension; if not, go to 30% dividend-paying stocks and 70% on the bond mix. Its plain vanilla, but it works. Of course, you can always set aside a reasonable percentage to play with when you see a good opportunity, eg, REITs had been very depressed the past two years with the tech bubble and most of my initial investments had dividend returns over 10% and as high as 15%. Today the returns are in the 8-9% range and the unrealized CGs run from 25-50%. But I do not advise buying them at their current prices. Pharmaceuticals and medical-related like MRK, Pfizer, J&J,etc. should grow nicely. If you are into biomed research being in NIH country, that gives you an edge (although my work in the plastics industry did not help me a bit when it came to picking either stocks to buy or stocks to short).
Since I am out of ACG, I'll say good-by now, and good luck in your investments.
ACG is not at the top of my pyramid: MCIT and AWF are. ACG does minimize my risk by doing what it is supposed to do: From a "total portfolio" view, it provides income and capital appreciation during the deflationary-recessionary phase of the economic cycle when long investments other than safe bonds and cash generally do poorly.
The hot-shot Nobel guys you talked about created the infamous Long-Term Capital Management scandal by misapplication of their Black-Scholes assessments to their "investing." Their biggest investors were actually some of Europe's government-sponsored central banks. The true scandal is that these execs got bailed out by the world financial community and paid themselves tens of millions as a reward.
(Egregious, but not unique; a big downside of American capitalism today is that incompetant leeches who bankrupt their companies can arrange secure, multi-million-dollar severance packages with company-paid lifetime legal services for themselves while firing thousands of lowly employees, stiffing creditors, and raiding pension funds. See Lucent, Webvan, etc.)
Compounding returns can indeed be terrific, especially in tax-deferred accounts. Would you suggest a few of your favorite investment vehicles?
Well, ACG should be at the top of your risk pyramid. But the purpose of fixed income investments is to minimize risk. A lot of yield-chasing people have been burned in junk bond funds recently. And as far as ACG's facility with leveraging and hedging, they've been both off-and-on with their average returns not much better than the low-risk funds, so I call them presently lucky rather than good. Do you remember a couple of years ago when those hot-shot Nobel prize-winning mathematical economists created a fund for millionaires with their can't-miss automated computer programs to hedge currencies and other deriviatives? They almost brought down the world banking system and taught a lot of millionaires an expensive lesson. The downside risk of leveraging is greater than the upside gain probability. Since you are in research, you are aware that the key element is time. Its just amazing what compounding does in those later years if you only stay the course. Good luck to you in your investments.
I do not see the economy picking up. If the Fed and Treasury pursue a deflationary policy, soverign bonds should continue to do well.
Nonetheless, the revised earnings are a concern. I will have to reevaluate my ACG holding.
Like you, I bought ACG at a discount and I have sold off some of it, but I wonder if it isn't just as well that the NAV has not risen much. After all, the best time to sell bonds is when interest rates are low (and bond prices are high). So perhaps the fund has been selling bonds from their portfolio and using the proceeds to pay dividends to the shareholders. If so, then you don't need to sell because the fund is doing that for you, and giving you the proceeds. When interest rates rise they can maybe cut the dividend and use the money to buy bonds when they are cheap. I'm not a bond expert by any means, but I've been getting a great return on ACG (and AOF), and I think it's worth holding, at least for now.
axzl, what is this thing you hold against Alliance CEF management? I've held ACG for years, and am mostly satisfied with its performance. (AWF I see as a investment vehicle to be traded as circumstances dictate.)
As for checking with Value Line data, several months ago I went beyond that, and played Devil's Advocate in an argument with a VL analyst who vigorously endorsed ACG's management. (A key variable in ACG's earnings is the performance of - well, never mind, do your own homework.)
GSF and SI I'm not familiar with. So I ask again, what's your beef?
I used to own GSF & SI . they did not do too great ,but they were what they were, bond funds that fluctuated with the bond market.I bought them strictly for income or building of assets,by reinvesting.They did what I bought them to do. Apparently it was too slow for many people and their ownership decreased so that AC decided to merge them (they were vert much alike in what they owned. They had another bond fund,Very similar,(AGC) so using NAV of each, they merged the three. I don't know what anyone's bitchen about,if they had read the prospectus when they bought either entity, they'd see that it did what it was proported to do.
Your post shows your lack of homework and truthfullness. How could you possibly have held ACG for years and not be familiar with GSF and SI since very recently GSF and SI were merged into ACG? But since you challenged me, if you do some due diligence on your own you will find that ACG's NAV and market value have declined steadily for years and the fund has had dividend cuts in the past, the most recent being in March, 2000. Why they recently raised the dividend is beyond me since the fund obviously is not earning it, and Alliance has not continued to pay out more in the past than they earned in these funds.
previous quarter, 10 year track raecord of 9.9% return, 83% u.s treasurues bought 12 years ago yielding 13 % in many cases makes this a very solid investment alternative to Cd or bonds yielding 6%. Also tiny 3% premium should expand to 10% in this low rate environment. Price target for ACG is 9.25-9.50 a share. At this price yield would be still 9%. last dividend change was an increase of .5 cents a month when earnings were 1.6 million less than newest quarter. I would not be surprised if new dividend was 7.5 cents a month or 90 cents a year to bring yield even higher.