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Post by Deleted on Sept 23, 2021 2:59:08 GMT
www.cefconnect.com/fund/IFNwww.aberdeenstandard.com/docs?documentId=US-140121-138144-1A PERCENTAGE OF THE DISTRIBUTIONS PAID IN MARCH, JUNE, SEPTEMBER, AND DECEMBER 2020 WERE RETURN OF CAPITAL DISTRIBUTIONS AND NOT DISTRIBUTIONS OF DIVIDEND INCOME AS DEFINED UNDER INTERNAL REVENUE CODE SECTIONS 301(c)(2) AND 316. Is RETURN OF CAPITAL good or bad? Is it like returning uninvested cash as dividend? Is it common in CEF world? What are the implication on 1) future returns of the fund and 2) tax liability of investors?
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Post by yogibearbull on Sept 23, 2021 3:12:15 GMT
ROC can be good (if NAV remains stable or rises) or bad (if NAV keeps declining). At one time, the thought was that managed-distributions, which mean ROCs in years when distributions aren't earned from income, will reduce persistent discounts for CEFs. Unfortunately, that hasn't happened. Managed-distributions and ROCs are quite common in the CEF world. Only some mutual funds have ROCs (old and discontinued managed-payout mutual funds had ROCs). See IFN NAV and make your judgement.
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Post by richardsok on Sept 23, 2021 3:24:03 GMT
Plain words:
ROC, of course, can be good or bad. If a CEF has a stable of assets that have risen (or are continuing to rise) ROC is an appropriate policy to slowly distribute those gains over time to the fund owners. To increase distributions OFTEN (not always) means either the fund has undistributed earnings and/or unrealized gains on hand, or management anticipates such gains, or both.
CEFs earning money using options strategies classify those distributions as ROC, though to my mind they really aren't.
CEFs are frequently complicated structures little understood by many of their investors. Notoriously they're the playground of the "dumb money" who are overly impressed with high yields and often don't fathom (or don't care) where the money flow is coming from. A CEF making distributions in excess of earned income where there are little or no gains in play is employing destructive ROC.
If all else seems gobbledegook, check the NAV chart. Rule of thumb: a steadily declining NAV is a red flag.
An increase in distributions is often -- but not always -- reason to feel somewhat confident that something is working well..
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