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Tuesday, July 17th, 2012
con job

A great piece by Jason Zweig over the weekend examined a wacky corner of the closed-end fund world, where capital is returned to shareholders of some funds in a way that convinces them that they are receiving high yields on their investment.  I’ve written about so-called managed distributions before, but Zweig does a great job of showing how investors in funds managed by Cornerstone Advisors are being duped.  Read the story if you haven’t, for the particular case of Cornerstone Progressive Return Fund (CFP) includes such dandy features as periodic rights offerings and an extra layer of fees, since the fund holdings are, in fact, other funds.

The picture shows the fund since inception:

Top:  Here’s that whopping distribution “yield.”

Middle:  This is the ratio of the fund price versus the net asset value.  Yes, investors have been paying a nice premium to get their own money back (for the most part).

Bottom:  Here are the returns on the fund.  Funny how that fat yield didn’t translate into actual performance.  Oh, yeah, there was a price decline of 65%.

No wonder we need a call to action.  (Chart:  Bloomberg terminal.)