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Explorer ○○○


Is the roc on this fund good or bad ? 

                                                     thanks   jj

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3 Replies
Explorer ○○

Re: ety.

ETY is ok but you may want to look at a few better performers, and if you are a income oriented investor, compare the better yields with the current performance [against GLQ and AVK as a example]. Currently, some of us have both in our current portfolio's. Something else to look at.... 

Getting back to your question, I don't like ROC of any sorts but if looking at it, I want a "declining" roc from Qtr-to-Qtr [on a continuous basis]. ETY fails that analysis parameter currently. One single opinion of the many I am sure....

Participant ○

Re: ety.

A few comments.

Note that ETY is defensive in that it sells calls, whereas GLQ and AVK are leveraged and thus more aggressive.  They all may be fine funds, which can outperform each other under specific circumstances.  I also would note that GLQ primarily, and AVK to some extent, also have delivered tax-characterized RoC in recent years, as has ETY (purposefully).

To be sure, in recent periods, in NAV total return such as trailing 1-year, GLQ and AVK have outperformed ETY, but in trailing 3-year and 5-year periods, as of today, ETY has outperformed the other two.  As for current distributions, those of GLQ and AVK indeed are higher than ETY’s 9.2%; the discounts of the latter two are much greater.  I have a large holding in ETY and I have been a bit disappointed in its YTD NAV TR.  When I feel more confident that reopening is secure and steady, I may look to reallocate to more aggressive (leveraged) funds that also deliver a good slug of RoC.  In that latter category I hold SCD and have held HIE in recent months, both leveraged.  GLQ (and the other Clough funds) and AVK may be candidates for me.

ETY's RoC is a good thing -- a feature, not a bug.

As for RoC, this is a clip from a post of mine from two years back:

Few operational features of CEFs cause more consternation than RoC.  It behooves a CEF investor to become familiar with the topic, since holding some common negative misperceptions can lead to misinterpreting some funds with great tax-advantaged distributions.  RoC can be bad or it can be good, and when it’s good it can be very, very good.  

If in a time period the post-distribution NAV has increased, then if any part of that distribution is tax-characterized as RoC that is a good thing (aka “non-destructive” RoC), as it represents a tax-deferred distribution.  IOW, in that period the total gain (NII + realized G/L + unrealized appreciation/depreciation) exceeded the distribution.  Furthermore, in a CEF trading at a discount even “destructive” RoC could be a desirable thing, since it is in effect a liquidation of some of the fund’s capital at NAV.  Other factors like expense ratio and reinvestment risk come into play in the total picture, but in the abstract regular destructive RoC in distributions from a fund trading at, say, a 10% discount, is per se not a bad economic process (especially in a fund with all Level 1 assets, such as SCD).

For capital in taxable accounts, after income that is tax-free all-together (such as from muni bonds), income that is tax-characterized and thus tax-deferred RoC is the next-best possible form of a distribution.  Some option-writing equity CEFs are by intention high-RoC distributing funds, and RoC is a significant part of the value equation of these funds, IMO.  Examples are ETV and ETY, which I hold.  One additional benefit of a CEF’s tax-characterized RoC, though for most holders not likely to be a dispositive factor in deciding to hold the security, is the stepped-up basis to heirs upon the death of the holder.

There is one final advantage of tax-characterized RoC in a distribution.  Unlike fully-taxable and QDI distributions, since it is tax-deferred RoC does not appear in adjusted gross income; the former both appear in full in AGI and the differential tax rates are only factored in later in the process.  Three additional advantages of increasing RoC and thus lowering AGI, in addition to not paying current tax on that income:  (1) some states key their state income tax off federal AGI; (2) more importantly for some, AGI limits the deductibility of certain schedule A deductions (like medical insurance premiums for those early retirees who buy their own commercial individual family plans), such that lowering AGI can have significant financial benefit; and (3) AGI forms the starting point for Medicare’s MAGI calculation. 

Participant ○

Re: ety.

I have held it in a regular brokerage account since 2017 and most all roc has been "good" - no taxes are always good.  Price now is about where I purchased.  I did buy some for my IRA in the March downdraft and paid around $9.  I wanted to add some more CEF income to that account and at the time ETY was the best candidate.