Annual Overview of Closed End Funds, Dividends and Profits Brought by Funds
The Reddit / GameStop incident, which has been highly talked about in the market recently, has slowly started to lose people's interest. As this strange market event is losing its effect, we think it is necessary to examine it one last time before looking the other way because there are three great benefits that are not noticed at the moment.
These benefits may indicate that we can achieve strong market gains and convert into approximately 10% dividends when we choose to invest in stock-focused closed-end funds (CEFs) in the future.
Profitable Investors From The Reddit Incident May Increase Their Stocks
In the GameStop war, approximately $ 70 billion has passed from short sellers to retail investors. Long-term investors who previously held these stocks are not included in this amount of earnings. Therefore, the fastest positive for the market comes from the high earnings of early investors to other companies involved in this battle and to GameStop
The earnings are generally in the hands of individuals rather than corporate companies. In this way, the money may be spent on different things in sales by public companies.
In such a situation, stock-focused CEFs can generate high dividends. For example, there is the Liberty All-Star Equity Fund (USA) with a large dividend of 10.6% and a 3.4% discount to NAV. This means that it is trading 3.4% less than the fund portfolio value. We can say that consumer-focused stocks have always paid off because America's top 10 holdings are also consumer-focused, such as Amazon.com (AMZN), PayPal (PYPL), and Visa (V).
A similar example was with the Gabelli Dividend and Income Trust (GDV). 5.9% returns, 13% discounts and a similar trend towards consumer economy have been realized at holdings like Mastercard (MA), American Express (AXP) and Sony (SNE)
GameStop War Can Create A 'Wealth Effect' By Bringing Investors To The Stock Market
Although the investors who profited from the GameStop incident earned a very small amount compared to the advanced American economy, these gains are very important considering the effects on their investment behavior.
This has been an indication that individuals can triumph over corporate companies. The victory story, which increases the interest and desire of the young people to invest, can attract more investors to the stock market and help the prices of stocks to rise. Finally, a 'wealth effect' occurs in a rising stock market.
Equity Earnings Increase Investor Spending
Research shows that the rise of the market makes investors feel rich, but for every dollar earned from the stock market, investors' spending also increases by 2.8 cents a year. In the GameStop incident, after individuals beat the big guys in the game, the average American investors will have a greater impact on spending as they believe they have more say in the market than before.
Short Sale May Be Over
GameStop event can take short selling strategies out of our lives. Previously, hedge funds used different analytical tools to determine if a stock was overvalued. One of the most important steps in determining this value has been retail investor awareness. If the interest of retail investors in a stock is too high, that stock will be set as a mature short target. Conversely, if a company in an industry is clearly put to bankruptcy, this can be a big short-sighted goal when the value of the company is in a downward spiral, as no one will invest in the shares of that company.
But now these assumptions have proved useless after the GameStop incident. Hedge funds will no longer shorten stocks as before. Citron Research, one of the world's leading short sellers, announced that it will no longer publish short reports on stocks, but instead will focus on long-term bullish ideas. If even a big seller gives up his short selling strategy, that could mean other smaller short sellers will also give up. However, shortening the stocks less means that more money will flow to buy stocks and help prices rise.