A curious price move in a CEF recently / A penny for your thoughts …

hank

I initiated a sizable stake in a CEF one morning around mid-week last week. I didn’t realize until after buying that it was set to go ex-dividend the next morning. At 2:00 PM the same day (a day before going ex-dividend) it fell out of bed, falling around 4%. The move was sudden, leading me to think somebody’s algorithm had kicked in. I then threw a few more dollars at it. It has been on the upswing for several days now, including even on its ex-dividend day and is now back near what I invested. With the dividend to be paid out in about 10 days, I’m ahead slightly.

I’m curious what, if anything, might have caused the brief plunge the day before going X? Best answer I can think of is folks felt it had been bid up in anticipation of going ex-dividend and wanted to cash out rather than hang around and wait to receive a dividend. Maybe there’s tax incentive for doing something like that? It’s crossed my mind that some big player noticed my 5-figure purchase in the morning and was trying to shake me out (prompt me to sell at a loss). I doubt that, however, because I don’t possess the kind of mega-bucks necessary to be considered a serious player or elicit another trader’s attention. Just food for thought … Obviously, I’m relieved to see it recover all its one-day losses over 3 or 4 trading days.

PS: Yogi once said: “Dumb money in the morning. Smart money in the afternoon.” Certainly held true in this one case.

Mark

It happens. I certainly don't have any meaningful measure of professional insight but I've noticed it quite often related to a large holder, usually of the institutional variety, wanting to exit a position. Many (if not most) CEF's tend to be held by institutional investors.It's my opinion that CEF's by and large are not held in large positions or amounts by your everyday mom & pop investors for whatever reasons.

If you would like to gain much better insight you might want to sign up and take advantage of the Fidelity "Investor Community." Several knowledgeable CEF investors comment regularly in the CEF threads there.

Edited to add - I noticed that you placed your post in the Off-Topic category. I for one think it belongs at least in the Other Investing space if not in Fund Discussions.

Old_Joe

@hank- Yes, you should move this to the main forum.

hank

I goofed. Thanks fellas. Will move.

Great tip @Mark. Fido has some good content. To be honest, one CEF is about all I can handle. Not at all dissuaded from owning it. Just a really weird dive. Makes one wonder what drives the markets.

BaluBalu

@hank,

Unless I have a longer view, I do not hold CEFs past the day before the ex-div date. This month I sold some even on ex-div minus 2 days, which is not common for me. I sell mostly on ex-div minus 1 day.

One of the ones I sold, sold off heavily into the close the day before ex date but that was a good buying opportunity if you were willing to hold overnight and have a neutral macro view so you do not wake up next day looking at further price loss.

I have heard many people buy on purpose the day before ex-div date to capture dividends. I never bothered to learn their motivations and incentives, as that would not align for me. I am glad they are there to bid for my stuff.

The above is only for regular divs (not special divs).

hank

Thank you @BaluBalu for the interesting tip on how these are traded. Makes sense. I’ve owned a few CEFs in the past but confess to never having paid attention to how they behave around the X-Dividend date. In this case the buy is intended as a long term hold. It replaced another CEF among my core holdings that has done well for me. Proceeds from that sale went immediately into the new acquisition. This one is more income oriented than the prior and is seen as a way of pulling a bit of risk off the table.

Yup - They certainly look like good trading vehicles if one is so inclined. Not my game.

Good to hear you’ve had experience with these. Definitely a different creature than most of us are used to dealing with.

BaluBalu

@hank, I used to own fixed income CEFs until sometime in 2021. After that I switched to trading them but not regularly as fixed income volatility has been high. Except for MLP CEFs, the only equity CEFs I ever owned are preferred stock CEFs which I treat as fixed income CEFs, but I have not owned preferred stock CEFs after 2020. Currently, I own the MLP allocation CEF, converting to fixed income CEF, PDX - but it is so small in my portfolio, after selling to buy another fixed income CEF, that it is not worth mentioning either. Now, I have difficulty with fixed income without leverage and so, fixed income CEFs in size would be too distracting for me. My hats off to folks that own levered fixed income CEFs (and MREITs) in an inverted yield curve environment.