The Danger to Certain (Overvalued!) Stocks and Funds – Including GAB

The real risk here is that more short-term volatility will kick in as this “vibe-induced wall of worry” causes some investors to sell, triggering others to sell, and so on. That’s what happened in 2022, and that’s what we’ve seen in the last few months.

Of course, this is a buying opportunity for the patient, but not all assets are good buys in such an environment.

Which brings me back to 11.6%-yielding GAB. It’s a value-focused CEF that holds great stocks like American Express (AXP), Mastercard (MA) and Deere & Co. (DE). That makes it a solid buy most of the time – but not now. Here’s why:

GAB’s Big Premium Puts It at Risk

A key thing to keep in mind with CEFs is that they tend to have a fixed share count for their entire lives, and as a result can trade at different levels in relation to the value of the investments they hold.

In GAB’s we’re looking at an 8.6% premium. In other words, buying GAB now would mean buying Mastercard, American Express and the like for more than we would if we simply bought them on the open market.

Not good! And it’s why we really want to avoid GAB now, with more volatility likely.

Worse, GAB’s premium has shot up in recent weeks, not because the fund’s market price is skyrocketing (it’s flat year-to-date, including reinvested dividends), but because the selloff has caused its NAV to fall steeply, while its market price has levitated.

GAB’s Wile E. Coyote Moment

A fund that has an unusually high premium, a total price return that’s hovered near breakeven year to date and a negative total NAV return year to date is exactly the kind of fund that’s perfectly set for a sudden, steep selloff when investors notice. And if the “vibes” stay depressed, investors will notice sooner rather than later.

But there is a silver lining here: When that moment comes, the mainstream crowd will probably overreact to the downside, creating a big discount on GAB. That’ll be a great time to buy, so put GAB on your watch list while we wait for that to happen.

Forget “Vibes”: These 5 MONTHLY Dividends (Yielding 11.6%) Are Primed to Soar

While overhyped funds like GAB wobble under the weight of soft data and rising premiums, we’re zeroing in on something that is VERY rare indeed: 5 cheap dividend funds kicking out a huge 11.6% average payout.

Okay, maybe the fact that these 5 dividends are cheap now isn’t entirely surprising, given the selloff we’ve seen. But I think you’ll agree that this is: These 5 powerful funds pay dividends monthly.

And with a yield like this, you’re looking at $11,600 per year on dividends on every $100K investment. That’s $967 a month!

I think you’ll agree that it’s rare to find even one monthly payer among the popular names of the S&P 500. But CEFs give us many more to choose from, including these 5 cash-rich funds.

When today’s panicked investors discover just how solid these funds’ monthly payouts are, I expect them to flock into them, sending their prices higher (and compressing their discounts down to nothing).

Contriain Investor