Where does HQL payout/distribution come from? None of its underlying stocks pay anything close to 10%. And over the past 6 months it doesn't seem likely constant sale and churn of stocks woudl produce a net 10% gain. Where does the funding for this distribution come from?
Dividend comes from capital gains, dividends from holdings and capital distribution. Since HQL currently trades at a 19% discount to net asset value, HQL fund managers can sell existing positions and pay those amounts to us as dividends resulting in lowering the discount between current share price and the net asset value of the fund. As a result of the massive discount to net aset value HQL will continue to pay dividend distributions for years upon years in the future. Shareholders win in the end as we get paid the discount either in dividends or one day in capital gains from price appreciation of the fund.