I just did a search on ETFconnect, and 168 closed-end funds are trading at premiums, some as high as 75%. PGP, PHK, and GUT have been trading at higher premiums to NAV for a long time and show no signs of slowing down. People must be thinking the NAV's are undervalued and will catch up, and are also buying yield while prices are still low enough to lock in some good monthly or quarterly payments.
Many investors probably know nothing about premiums or discounts to NAV and are just buying this fund because they find its yield and potential attractive.
I already own some ADVDX, so I may let AOD run for awhile longer. There is always the chance the stocks in AOD's portfolio will go up and the premium will go down over time.
I just checked BOE on BlackRock's site, and 59.9% of the portfolio is overwritten with call options. So that's where that ROC is coming from, and the call-writing income is primarily what is funding that distribution.
Once I understood how the options arbitrage (i.e., call writing) funds worked, I actually like the ROC if you intend to buy and hold. Where else can you get a 12% - 15% yield that's subject to very little tax until you sell the shares?
I hear 'ya. My Roth IRA got hit the hardest last year, as it was in things like international and emerging markets mutual funds and CGM Focus. And in a Roth IRA, those are losses you can't deduct - and you've already paid taxes on money that you no longer have!
At first I actually wanted to buy ADVDX. However I never did due to looking at its stock chart history, compared to other stocks, it hardly grows.
I ended up just putting a portion into AOD instead. I also bought CVY which has been the best etf I own, although they cut their dividend twice now. I also have a small portion in NCV, but it too has done quite well since I originally bought it. Both better than AOD, but AOD pays the most in dividends.
I own both, rather recently I must say and I am not sure it is time to throw in the towel just yet. I agree with gates in that there are prolly a lot of yield chasers that will keep it propped up for a long time. "The Market is very efficient at transferring money from the impatient to the patient" Warren Buffet
I being new to both cant justify it quite yet. I bought PHK in January and like the dividend , I am also anticipating a large special dividend at the end of the year for my CEF's. I dont want to miss out on that.
Gates, you are right but all you are really saying is that the market is undervalued and stock prices are going higher. In AOD case we need a 30% increase in the market to get the NAV caught up with the market price. I know you don't believe were are going to tack on 3000 points anytime soon by what you have said in your other posts. No, there is no rational reason for the premium and while many CEFs trade at premiums today this is not the norm. CEFs generally trade at a discount. Any wiff of correction will take the premiums down much faster than the NAVs. AOD could lose 1.00 of market value in a week and still be priced to high to be prudent. This is a bubble and bubbles pop. Maybe not today or tomorrow but it will pop.
The fact that ADVDX exists presents every owner od AOD an opportunity most others wil never have. Trade a 30% premium which earns nothing for solid 100% NAV which is actually comprised of real stocks at ral market values paying real dividends.
I agree that very high premiums are at risk of being taken down, and that ADVDX is the better value right now, especially since it is the only open end mutual fund I've ever heard of with a yield better than most CEF's. I have not been reinvesting my dividends in AOD for a long time now due to the premium, while I have with ADVDX.
I'm watching AOD and may take my gains at some point if it goes much higher.
Also, I swapped some of it into ADVDX quite awhile ago.