ECAT - Will ECAT And BCAT Be The Poster Children Of A Market Top?

2024-05-28 15:57:39 ET

Summary

• There appears to be growing evidence that CEF fund sponsors and income-hungry investors are willing to sacrifice longer-term fund prosperity for higher yields today.
• By increasing annualized NAV distribution levels to as high as 20%, this is resulting in distribution increases of 60% to 120% just this year.
• This may be great news for shareholders and activist investors demanding action to reduce fund discounts and increase valuations. But is this all an act of desperation at a market top?
• Clearly, there's much more competition to attract investor dollars with ever higher yields as more and more ETFs get into the game and have even gone as far as to title their funds.
• But I can't help but feel that the writing on the wall suggests that we are at or near a market top, at least temporarily.

Inspired by ultra high yields that fund sponsors know investors can't resist, we're seeing a mad rush of distribution increases at a market high that normally wouldn't be cause for concern if the funds were seeing NAV growth to support those distribution increases.

Unfortunately though, this is looking more and more like an effort just to keep up with the competition of high-yielding funds that can "offer" as high as 50% or more annualized yields by using options on the most popular and volatile stocks, mostly in technology....

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