Yesterday Alpine Total Dynamic Dividend Fund (AOD) dropped significantly down in price and today it continued down as well at the same speed as yesterday. On discussion boards I could find busy discussion why that happened. Mostly the concern was about a recent article by Dan Plettner at Seeking Alpha who wrote in his “Alpine’s Total Dynamic Dividend Fund: Overdosing on Financial Engineering” article why he thinks the methods of AOD’s trading and distributions are not sustainable.

Many members of the board were angry with him, because he is short the stock, he published the article at ex-dividend day and he possible triggered the sell off.

No matter what, he pin-points couple serious questions some investors refuse to discus or even consider. I must admit, that when I was buying AOD I was looking at the yield and totally ignored other aspects he brought up. So even though I lost money on this investment, he actually made me a favor by clarifying several things I have to take a look at in the future.

First my concern is about a constant NAV depletion. The fund opened in January 2007 at $19.07 NAV trading at $20 a share. Since then the NAV has been depleted to $6.78 (as of the end of March 2010) so the price had to drop as well. Any price above this NAV (premium) has no solid base and is risky to trade. As a long term investor in this case I do not like holding a fund which will potentially loose its capital and with this speed of three years (losing 65% of its NAV) it may happen pretty quickly.

I saw arguments that underlying portfolio will improve the NAV of the fund, but that doesn’t too sound to me.

With a danger of cutting the dividend and further drop in price I decided to liquidate my position in AOD and relocate my money into Johnson & Johnson (JNJ).

06/23/2010    Sold   219   AOD   @   6.2101

06/23/2010    Bought   23   JNJ   @   58.8594