RE:Confidence levels on Split CorpsSmellsofMoney wrote: I just wanted some general guidance on these.
I've been in them some time, but now I wonder if you guys think they'll be around for a long time.
Like how can they afford to keep paying out dividends once we pass the minimum NAV? Is it really going to be this easy - play the cycles, collect dividends, rinse repeat??
I worry that one day they'll just decide not to renew anymore, and just make up a new fund, simply to lower the yield, and then I'll be forced to sell at whatever price.
Not only will I have to deal with potential losses, but then suddenly trying to figure out where to redistribute all the sudden funds.
By long time I mean 10-20 years. Thanks!
My first reaction is that for splitshares renewal risk is the least of your worries. The fund management companies like Quadravest,Brompton,etc will do everything in their power to renew their funds.In my experience of twenty+ years of trading closed end funds the only scenerio under which a fund is closed down is if the fund has shrunk to an uneconomic size, usually due to retractions/underpreformance. Notice is given about six months in advance on whether the fund will be extended or not,so you have lots of time to trade out of a position or receive the NAV value at maturity.
Consolidation on a renewal date is a more frequent event though one the size that occured last fall with FTN is rare -- a finance paper could be written on the complexities involved in that transation alone so will leave that topic for another time.
The distributions you receive on capital split shares are a return of capital. Basically you could have the same effect by selling 1% of your stock portfolio every month and calling it a 12% dividend.
No one should just buy and hold splitshare capital shares so a 10-20 timeframe is not relevant.