It looks like those on this board that post so
well think the cut is inevitable. Any chance that they
will not cut dividend? What would be the scenario for
that to happen? Fax is up a little today. Is the cut
already priced in?
depends on currency, in my opionion. If Aus
remains at $0.65- 0.66 level in next few months
($0.63-0.64 now), the FAX asset will be higher than $6.1/s.
In addition, FAX gets some currency appreciation
from its Korean investiment. Also, paying high div to
shareholder is an another way of tender shares from
shareholder, but has reversal affects on the share price. For
this reason, I would rather to see FAX using retired
seculities for tendered shares at NAV, just like South
Africa Fund did.
Yes, the AUD is the most important single factor
in FAX's NAV and a major factor in its dividend. The
great great majority of FAX's Korean debt securities
are dollar denominated so it can't get any currency
appreciation. It is possible to get credit appreciation from
the Korean and other Asian debt which is something
not likely with the higher credit rating Australian
I can never remember seeing a stock rise on
announcement of a dividend cut, in fact a significant drop is
almost universally the norm. The degree of the FAX cut
could effect market reaction. Dividend concerns most
certainly could be priced into FAX, so a small cut might
have little effect. If the monthly dividend drops a
penny or more, I expect a distinct and noticable drop
in FAX's share price.
I wouldn't focus too much
on any recent rise in FAX's share price. It seems
most other closed-end bond funds (at least those that
I follow CGF, DSF, & MSY) have been strong as of
It is good to discuss something meaningful
together. Thanks, AXZL!
I am not a date trader. But,
in such a computer-age enviroment, I found out that
trading is mostly affected by market condition and
momentum. Dissolution of CEF and rebuilding a sequel fund
in a limited period (every 5-10 yrs) shall help
stock price in this sense.
I also found SOA
approach by tendering shares quite practical. It should
not affect the NAV too much, but increase CEF market
value by expectation.
I understood the NAV of
FAX is determined by the safety (rating), div,
currency, and interest rate. However, the stock prices were
controlled by trading. Since the trading pattern of this age
is different from 2-3 years ago. I do think CEF
managers should pay their most attention to maintain the
market value as close to its NAV. In addition, the rule
of management fee should be changed.
Fund manager should announce a projected
"dissolution date or period" (5-10 yrs) for the fund and then
built a similar one for tax-free transfer for
shareholders. I call it "Close-end Fund Merger/Buyout (CEFMB)"
to enhance share value.
I would expect FAX to drop below $5 the day after
the dividend reduction is announced. You might also
notice some weakness in the days immediately prior to
the announcement. Bottom might be in as few as two
days after the announcement.
As one recent
example, LTC announced a dividend reduction last week -
$39 to $.29. They also held a conference call which
went well in my opinion. This CC and the fact that the
LTC share price had fallen about 30%already probably
helped the stock as its price fell only 5% after the
I paid aproximately 6 1/2 for my shares and I've
got about 10,000 shares so going down translates to
$10,000 a point but as long as I don't sell I don't lose
anything. Eventually it;s bound to rise again and in the
meantime I get a pretty good dividend.
As far as
timing your buy (if you buy) that's a tough call. Lord
knows I'm no expert.
about Closed End Funds(CEF) that you may want to
First, Equitilink manages FAX for
management a fee.
Second, the management fee is a
percentage of the NAV, not the market value. Therefore
management's first concern is with keeping the NAV as high as
possible which IMO strongly indicates that they won't pay
a dividend that results in the return of capital to
shareholders for very long because it tends to lower the NAV
which is the basis for their fees. I am not saying that
they are not concerned with the market value, but
market value concern is secondary to NAV
Third, don't look for Equitilink or most other CEF
managers to desolve a CEF because the market value is at a
discount to NAV and it would be good for the shareholders.
They are in business to make money for themselves
first and foremost. No FAX, no jobs for
Fourth, as long as interest rates are going up and
depressing the NAV of the fund and as long as the Aust. $ is
weak, I have a real problem seeing how FAX can increase
net income from operations to earn what they are
paying in dividends or how they will generate any
capital gains to make up the difference
Perhaps you or someone else can point out something that
I am missing. Also, understand that I am long FAX
at about $5 9/16 and would like FAX to perform well
I do not necessarily think that the dollar will
weaken against the Euro any time soon. I am leaning
towards closed-end equity funds invested in European
stocks. The weak currency could help their corporate
revenues and perhaps longer term the Euro might strengthen
given European productivity increases sufficiently. It
is improving, but slowly. I am no economist, but I
could write a book on unproductivity in Germany having
lived there for 4 years and had 250 German workers in
Whatever you find out on
the credit of the DSF portfolio, I would be
interested in so a post here would be appreciated.