I've been following CEF's for YEARS and I have not come across a more ticking time bomb than FAV. The fact that it is trading at over $13 when it's NAV is going to get hard today at $10.64 should be a red flag to begin with.
The fact that FAV says they are not using leverage when in fact, they MUST be using leverage (either derivatives or margin) should also be a red flag. FAV's NAV goes up and down more than the market each day and yet it's portfolio is not exactly high beta stocks. This is evidence that some form of leverage is being used.
Combine that with the fact that according to their semi-annual report, FAV generated $8.2 million in dividends for 6 months ending May 31, 2009 and yet their total portfolio value was only $71 million! That equates to a 22.3% annualized yield! Even with a dividend capture strategy, that seems preposterous!
I believe they are using leverage and its the only way they can justify a dividend which should have been cut already. They are essentially relying on a strong market to save them. Virtually every other leveraged CEF trades at a discount and virtually every other 1st Trust CEF is at a discount too. NONE deserve it more than FAV. This will not end well. JMHO.