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AOD: Continuing To Match The World Stock Index Performance

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Thesis

The Aberdeen Total Dynamic Dividend Fund (NYSE:AOD) is simply a closed extremity money focused connected equities. As per nan fund's literature, AOD's main nonsubjective is existent dividend income followed by semipermanent maturation of capital. To that end, nan money pays a monthly dividend, which presently generates an 8% yield. The money falls successful nan Large Capitalization / Blend bucket, erstwhile compared to nan applicable Morningstar portfolio categorization criteria.

The closest scale comparison is nan Vanguard Total World Stock Index Fund ETF (VT). Ultimately AOD transforms world equities returns into monthly dividends. The money has a de-minimis leverage ratio (sub 2%) and should correspond an alpha generating conveyance versus nan index. The money has nan expertise to constitute covered calls aliases bargain puts connected up to 10% of nan portfolio:

In bid to hedge against adverse marketplace shifts, nan Fund may utilize up to 10% of its full assets (in summation to nan 10% limit applicable to options connected banal indices described below) to acquisition put and telephone options connected securities. The Fund will also, successful definite situations, augment its finance positions by purchasing telephone options, some connected circumstantial equity securities, arsenic good arsenic securities representing vulnerability to equity sectors aliases indices and fixed income indices. In addition, nan Fund whitethorn activity to summation its income aliases whitethorn hedge a information of its portfolio investments done penning (i.e., selling) covered put and telephone options

AOD is simply a CEF wrapper that transforms equity returns into monthly dividends. Due to mediocre equity capacity successful nan past year, nan building is now utilizing complete 60% successful ROC for its monthly disbursements. We expect precocious ROC utilization to persist if nan world banal markets do not commencement posting accordant affirmative results. AOD does what it is expected to, and fixed nan manager's way record, will proceed to intimately lucifer from a full return position VT's performance.

Performance

The CEF has continued to execute successful statement pinch nan Vanguard Total World Stock Index Fund successful nan past year:

AOD return

Total Return (Seeking Alpha)

We person besides introduced present different constituent of comparison, namely nan SPDR S&P Global Dividend ETF (WDIV), which is an ETF focused connected dividend paying world stocks.

Ultimately an investor should support successful mind that nan CEF building purely converts nan underlying consequence facet (in this lawsuit world equities) into dividends. When compared connected a full return basis, instruments tin show which wrapper outperforms. Total return intends that dividends are included, and that is nan due measurement to comparison CEFs pinch ETFs.

Longer word AOD and VT grounds nan aforesaid return profile, while WDIV underperforms:

return

Total Return (Seeking Alpha)

This mightiness beryllium a communicative of WDIV being poorly set-up, alternatively than thing else. Ultimately AOD continues to intimately reflector VT, while providing regular dividends. An investor who is comfortable pinch superior gains should spell for VT, while investors looking for dividends should take AOD.

Premium/Discount to NAV

The fund's discount has been trading successful a very constrictive scope this past year:

ChartData by YCharts

We tin spot really nan CEF's discount to nett plus worth has fluctuated betwixt -10% and -15% successful nan past year. This money has a debased beta to risk-on / risk-off environments, truthful it represents a much appealing bargain and clasp prime versus different instruments. A precocious beta to marketplace conditions present simply intends nan money would acquisition important volatility, concurrently pinch marketplace wide moves.

Distributions

Given nan antagonistic capacity successful world equities successful nan past year, nan money is presently utilizing a precocious percent of return of capital:

distribution

Distribution (Section 19a)

As of its latest distribution, 63% of nan rate disbursed is really return of superior (i.e. your ain money). It is normal and expected though for monthly paying CEFs to utilize ROC erstwhile nan underlying consequence facet returns are conscionable not there. Long term, however, a precocious utilization of ROC tin beryllium destructive. If 2023 turns retired to beryllium different twelvemonth pinch antagonistic world banal returns, nan money mightiness request to deliberation astir lowering nan dividend amount. 63% ROC figures are not sustainable agelong term.

Conclusion

AOD is an equities focused closed extremity fund. The conveyance encompasses world dividend paying stocks, and has a full return capacity intimately aligned pinch nan Vanguard Total World Stock Index Fund. Given world equity markets underperformance, AOD is presently utilizing complete 60% ROC successful its distributions. The money is trading pinch a -12% discount to nett plus value, which we expect to persist. This CEF has seen its discount waste and acquisition successful a very constrictive scope successful nan past year, and does not correspond a precocious beta play connected marketplace risk-on/risk-off moves. Think of AOD arsenic structural wrapper to make monthly income from world equities markets.

This article was written by

Binary Tree Analytics floor plan picture

With a financial services rate and derivatives trading background, Binary Tree Analytics intends to supply transparency and analytics successful respect to superior markets instruments and trades._____________________________http://www.BinaryTreeAnalytics.com

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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