Managed distribution policies

Many CEFs set distributions by policy rather than by what the portfolio earned last month. A level-rate policy pays a fixed amount per share each period. A percentage-of-NAV policy pays, say, 8% of average NAV per year, so the cash amount moves with NAV.

Sponsors adopt these policies to give shareholders predictable cash flow and, often, to narrow discounts. The trade-off is that a policy set above the portfolio's sustainable earning power will be funded from gains or capital. The Section 19(a) notices that accompany each payment estimate its sources; the annual tax characterisation gives the final answer.

Things to check on this site: the distribution-change history (a cut is often the end of a policy that was not covered), the composition estimates, and whether NAV has been eroding over multi-year periods after distributions.