Repy to Jimbollini - Looks like ETY closed trading today at $10.44 per share ...a price level it has NOT seen since July 29 of 2011 when it closed at $10.45. ETY fund management has subjected us to THREE dividend cuts since that time ....but is also actively engaged in a monthly share repurchase plan since Sept of 2012 ...taking approximately $5,000,000 of the active shares off the market each month ( on average ) and they also switched to a monthly distribution of the dividend in Jan of this year ...all of which tend to disrupt the price movement of the stock ...both good and bad.
Performance wise ...ETY did well in 2012 on a total return basis ...starting the year at $9.00 per share ...paying out $1.04 in dividends and finishing the calendar year at $ 9.37.
YTD - Ycharts is showing the Total return performance of ETY at a + 11.37% return ....comparative to the S+P 500 YTD return quoted in the paper yesterday of 12.0% ...The Dow is Up 13.2% and the Nasdaq is UP 10.6% YTD.
My point being that ETY has performed in line with the comparable indicies ...exceeding the S&P in 2012 and damm close ytd in 2013.
The Net Asset Value has increased to $11.62 .....again a very nice improvement since the beginning of 2011 and a very positive sign of financial health for the fund ...( assets are growing significantly & number of shares in the fund are declining by about $5,000,000 worth each month for the next 4-6 months )
Closed end funds ....and particularly funds like ETY - ( those with a bad reputation of cutting dividends and getting slammed in adverse markets ) tend to be a bit slower to react market price wise to positive market influences ....and long suffering investors who finally see a price rise in ETY tend to dump the shares when it hits certain " round " numbers ...like $10 per share ....or $11.
Here are the reasons to OWN the fund :
1. Monthly dividends - annualizing to a 10% cash flow - ( get Paid for your time ! )
2. Its greatly UNDERVALUED - priced at $10.44
One more point of arithmetic to consider - You paid $20 per share for AOD and have since collected about $8.26 in dividends ....and the price is now $4.11 per share ...Your Total return on this investment is about -38.15% by my quick calculation ....assuming you took cash ...if you reinvested each dividend to buy new shares of AOD ...the percentage of loss increases to -57.45%
Over the same period of time and had you simply purchased the S&P 500 Index fund and reinvested the dividends ...you would have a + 28.30% holding period rate of return on your money ...
The point being that this fund VASTLY underperformed the general stock market ...and your complaint is not about simply losing 15-20% of your principal in a down stock market ...bear markets come around every 4-5 years ...and investors should expect some poor years of investment returns ...These guys lost about 60% of your money despite the good market years of 2011 and 2012 and ytd 2013....the rest of the market lost money in 2008 / 2009 ..but has recovered those losses and is up almost 30% ....Thats the arithmetic of your unrealized losses in AOD ...hope this helps ...
Smasherstocks - Check the lawyer listings for a " Securities lawyer " .....with experience in the arbitration process ... A good securities lawyer will cause the brokerage firm to take you seriously ...( they won't if you dont have a lawyer ) ...and will cause panic at the individual broker and manager level ....as they realize that their supervision and low level of communication are going to be called into question.
An experienced lawyer, will know what reports to ask for ...what risk tolerances might have been suitable ...and will ask for a listing of other clients that purchased AOD on the IPO and from this broker....and how many of them subsequently SOLD out of the position ...leading to the question : Why were you the " Lone Ranger " that didn't get the word to dump the shares. ( neglect ? oversight ? )
Typically the firms that underwrite and distribute new issue offerings also provide in house Research recommendations on the stock / fund a few weeks after its starts trading ...often at a BUY rating ....I bet that somewhere along the line....the brokerage firm changed that rating to a HOLD ...then to a SELL ....if true ....then why did they not so advise you ?
Good luck ...it will be an uphill battle and take a bit of time and money for you to resolve ...but if you feel so strongly ...you have this avenue ....
last word - The brokerage firm will also have a decent lawyer ..and they will " bite-back " at you to defend ...make sure that you are ready for that. - regards
Reply to Jimbollini - I still think ETY is a solid investment choice ...at current price of $10.27 per share ...we still are looking at a 9.8% discount to NAV ...a nice improvement from the 14-15% discount the fund was sporting a few months ago ... and still leaving us with some market price improvement as the discount narrows a bit further ....( maybe 2-3 percentage points more as the fund continues its aggressive share re-purchase plan )
The $0.084 per share monthly dividend seems to pose little problem for fund management to meet ...and that annualizes out at about a plus 10% for us in 2013 ....
The source of the strong dividend stream is still 90% ROC ...making the tax efficiency of the paid out dividends very attractive ...( just did the 2012 taxes - lol )
Option Income funds typically lag the comparable S&P index in strong UP markets and ETY is definitely doing that on a YTD basis ...yielding a Total return of + 6 % vesus the S&P index netting + 8.99 over the same period ....oh well ..but if my performance expectation for ETY in 2013 is +10% from dividends, + 3% from discount to NAV narrowing and + 7% from market price improvement ...that puts us in the + 18-21% total return range for the year ...after having scored a plus 19% in 2012 ....and that is strong in just about any portfolio.
I like other Option Income funds - EOS / EXG from Eaton Vance but the reality is that I probably have too much of the overall portfolio ( 22%) in this one style ....dividend reinvesting sort of sneaks up on you at times ...so ..I am NOT adding any more ETY or similiar funds for that reason.
You mention a falling pps ....we sort of have a 10% discount built in and a market correction would certainly slam ETY ...but if the discount to NAV increased to say 15-16% again ...I predict that many folks will be aggressive buyers ...if only for the discount ...
Other funds ? - I have done very well with AWP ...another " Fallen Angel " which is centered in high-end real estate -
Smasherstocks - part deau -
4. You purchased AOD on the offering or IPO ....hmmmm... Did you have experience buying INITIAL PUBLIC OFFERINGS ( IPOs ) in the past ? New stock / closed end offerings are typically considered most speculative and are normally excluded from conservative investors ...for that very reason.
5. Excessive commissions / fees - broker was paid $0.50 per share to solicit and complete the sale of AOD in your account plus the new issue registration fees / lawyers fees / exchange fees typically add another $0.25 per share to the cost of the fund ...so in essence ....you were paying $20 per share for something worth $19 or so ...how was that in your best interest ? Brokerage firms should be acting in your best interest as a fidicuary in many ways ...that could be considered a breach of fidicuary capacity ....( perhaps )
5.They knew they had screwed up ...and moved to cover their tracks ....By asking you to suddenly sign a suitability agreement that changed you from a conservative only investor...to a more adventurous investor ..they must have realized that the 70-80% raw loss ( unrealized ) on AOD was inappropiate for a conservative only guy ....so they changed the suitability ....AFTER THE FACT ...sort of like closing the proverbial barn door ...after the horse has run away ... and could be considered proof that " somebody " was worried or that your unrealized losses and percentage of losses were appearing on a risk management report somewhere ....hmmmm ...
6. Your trading experience ? probably as a " novice " or beginning level investor ....makes this type of " RUN & GUN " trading unsuitable ...even inside a fund ...what was your market experience back then ? Experience is a vital component in determining overall suitability ...did they take that into consideration ? hmmmm
Ok - thats the gist of your complaint ...not that you simply lost money ...you should NOT have been in the fund in the first place ....Unsuitability / Failure to Supervise /
Reply to Smasherstocks -
You dont literally sue the brokerage firm / broker in State or Federal Court since you signed an arbitration clause in your account agreement with A G Edwards and its successor firms ....but this may be good news for you since the arbitration process is simpler and does not require a lawyer ( still a good idea though ) and is much faster ( months...not years to litigate ) and the rules of evidence are not as stringent and the whole thing typically takes place in a hotel conference room ....its cheaper too.
Some points to consider both in favor of your claim and against it:
Favorable to lawsuit -
1. Y-charts is showing that AOD has a Total return of - 57.97% since inception ( ouch ) and compared to the S&P 500 index total return over the exact same timeframe of + 25.16% ....so the fund has vastly underperformed ( with dividends reinvested ) a typical general market index ....While the general market suffered an across the board hit in 2008-2009 of about -58% ...AOD failed to recover in any significant manner.
2. As a conservative investor, your broker should have known that the " dividend capture " tactics employed bythe fund management was extremely aggressive and speculative in nature and therefore inappropiate for your portfolio. Short term and rapid trading to capture dividends is ALWAYS speculative and therfore unsuitable for long term / conservative investors ...even when wrapped up in a mutual fund format.
3.Failure to supervise - As the market price of the fund slipped below 30% or $14 per share ...where was the brokerage firm management and or the broker ? Did they check in with you to see if you were OK with the looming financial disaster ? Did they offer alternatives including stopping your losses with a STOP order ? or simply going to cash in order to wait out the market storm ? OK ...when the fund price slipped below 50% of your purchase price ...what did they do ? ...60% ? 70% ? when did they plan on suggesting that you SELL?