November 5, 2010: The market discount of Cohen and Steers Dividend Majors Fund (DVM) shares has narrowed by more than 11% in less than two months. On the evening of September 15th, 2010 Cohen & Steers announced adopting a level rate distribution policy, and declared third quarter distributions for its affected Closed-End Funds. That afternoon, DVM had closed at $11.20, a 15.66% discount to its $13.28 Net Asset Value (“NAV”). Yesterday, November 4th 2010 DVM closed at $13.61, a 2.86% discount to its $14.01 NAV. (Data source: CEF Connect)
All distribution increases are not created equal of course, and even a prompt assessment that DVM’s may be a significantly positive market stimulant could not be implemented until the morning of September 16th. I wrote about my purchase of DVM at $11.46 on September 16th in the account licensed to Covestor’s Core Total Return model. I bought at nearly 14% discount to the $13.28 NAV published on the evening of the news, which was lucky considering that I had failed to anticipate probability that DVM’s distribution would increase alongside other Cohen & Steers funds I already owned.
Such discount narrowing can in theory provide opportunities for alpha, for any level of equity exposure. I believe the DVM news has run its course, and I find DVM less attractive for prospective alpha than other available underfollowed securities. I sold DVM from my account licensed to Covestor’s Core Total Return model at the November 2nd 2010 New York Stock exchange open.
I hope DVM’s discount continues to narrow for its ongoing shareholders. There is nothing wrong with Cohen and Steers Dividend Majors Fund in my view, and I am imperfect myself. I view investing largely as choosing risks which may be justified by the expectation of rewards. That does not always serve me well. I wish my macro-perspective had allowed me to own more DVM for the last two months. Sadly, my risk-averse nature and insufficient conviction in the equity market left me broadly under-invested for September and October. The same risk-reward conscious nature now leaves me believing that my DVM call is ripe for harvest, which may prove nominally premature.
Alpha or not, I have been underinvested and underperformed in the very near term. The point is that I believe we are all imperfect in all of our investment decisions. As unheralded as humility is on Wall Street, it is vital to objectivity. Those who fail to accept their imperfections may be doomed not to improve their acumen, and worse disable themselves from making sound, objective decisions. I license monthly textual investment reports to Covestor for each of my style biases, and I believe the process of self-reflection is beneficial.
The above text is licensed to Covestor Ltd. (“Covestor”), by Dan Plettner. Such text may be disseminated only by Covestor. Dan Plettner invests and receives income for securities research, including “buy-side” research. Dan licenses his own real time trading data to Covestor Ltd. (“Covestor”). Covestor is a Registered Investment Advisor that uses Dan Plettner’s data to create the Core, Closed-End Fund Activism Profile, Long Short Opportunistic, Pure Short Opportunistic, Tax Advantaged Income, Taxable Income, and MLP Direct Ownership models for its clients. Dan’s words should not be misconstrued as investment advice.
