Will you still feed me, will you still need me when I am 65?
i'm not a buyer due to the following:
1. mgmt hasn't made the best picks. the two that stick out in my mind are moving into the energy sector at the top and buying iStar financial. in the recent conf call they referred to that company as a premier lender to real estate developers/companies. iStar never has been and never will be a premier lender. the "premier" lenders to developers and real estate companies are banks, like wells fargo and us bank. i think they chased iStar because it had a higher div payout than the real premier lenders.
2. i have set limits on total exposure to any one stock, even a diversified fund like this. i'm pretty much maxed against that so don't want to add more.
3. they can't hold much cash so they are a bit too exposed to market declines. i think we will see the S&P drop below the low of oct 2002. so this fund may go down further.
if you have no exposure to this fund now, it might be worth buying shs in small increments over time.
Can you help me with my understanding of this fund? With the dividend capture process, in a declining market, they will be buying high and selling 61 days later at a lower price thus decreasing the NAV. While doing this the dividends could remain constant, assuming no dividend cuts, increasing the yield.
In an up market they will be, theoretically, buying low and selling 61 days later at a higher price thus increasing NAV.
If I am correct declining markets are tough on a fund using this strategy. However, it doesn't mean that the fund isn't sound and doing what it is structured to do.
there is alot of debate out there on the div capture strategy. there are books written about how great it is and there are books written that say it really doesn't beat the market over time.
as far as the strategy in an up market versus a down market, i don't see how it is any different than a buy/hold strategy in terms of capital gains/losses. except that the div capture leads to realized losses in a down market versus unrealized losses for a buy hold (because in the buy hold you never sold any stock). but you are still down in each case, i don't see how your percentage decline on the two strategies is going to be materially different. here's an example:
i have 10k to invest in a buy/hold strategy and i have another 10k to do this div capture. the market goes down 20% so now each bucket is at 8k, 2k losses realized in one and 2k losses unrealized in the other. then the market goes up 20% and i'm back to 10k in each bucket, i'm even on the buy/hold as unrealized losses went away. in the div capture, i have 2k in realized gains so i'm back to 10k (and i offset the 2k in gains with the 2k in losses for taxes).
mgmt here uses many stocks for the div capture and they are buying and selling all the time. so i don't think they could have a major timing mistake and sell on a day when stocks are down 10% and not be in invested when the market goes back up 10%.
i would love to hear someone explain how div capture is significantly different than buy/hold in a down market. you are invested all the time so how can it be different ? except the realized versus unrealized losses (but again, you recover when the market goes up).
i should also mention mgmt stated in the recent conf call that the % losses in their div capture pool were less than their buy/hold pool. so it really comes down to stock picks, the strategy of buy/hold, div capture is less of an issue.
DO NOT BELIEVE ANYONE WHO SAYS THE NAV IS GOING TO ZERO BECAUSE OF THE HIGH DIVIDEND PAYOUT. MGMT IS NOT GOING TO LIQUIDATE THE FUND IN ORDER TO MAINTAIN THE DIVIDEND AND AT THE SAME TIME ELIMINATE THEIR JOBS AND THEIR MGMT FEES. THEY'LL SIMPLY REDUCE THE PAYOUT SUCH THAT THEY DON'T RETURN CAPITAL TO INVESTORS.
i'm in this one for long term and am sitting on losses. i've noted that mgmt here hasn't had the best sector/stock picks. but take a look at the performance of legg mason's bill miller and cgm's ken heebner. these guys are supposed gurus and they've lose huge in this market also.