Tis the start of the holiday season, and along with Thanksgiving, Chanukah and Christmas comes year end closed-end fund distributions. These distributions can be quite large and can make it appear as if your account has lost value until the distributions are paid. Take for instance the closed-end fund General American Investors (symbol: GAM). GAM closed on Wednesday (11/13) at $38.23 per share and closed the next day, Thursday at 35.16 or $3.07 lower. Most people that look at their account value would assume that they lost money as one of their positions was down $3.07 or over 8% in one day. However this assumption would be wrong. So what happened?
GAM went ex-dividend on 11/13/2014. This means that if you owned GAM before this date you will receive the distribution, however, if you purchase it on this date or after you do not receive the distribution. The distribution for GAM is $3.50 per share which represents a 9.16% payout versus the 11/13 closing price of $38.23. Even though GAM went ex-dividend on 11/13 it will not pay the $3.50 per share until December 30th. This accrued amount is not reflected when you view your account value and will not be reflected until it is paid on December 30th. In other words from 11/13 until 12/30 your account value will appear lower because of the accrued, but unpaid dividend.
In the case of GAM not only did an investor not lose $3.07 in one day they were actually positive by $0.43 per share. GAM declined by $3.07 per share but this was offset by the $3.50 per share that they will pay on December 30th.