Odd Pricing Behavior in Nuveen NY Dividend Advantage Fund (NAN)

Most municipal closed-end funds had a down day today. The Nuveen Municipal Closed-end Share Price Return Index (^NMUNP) was down 1.13%.

But a big exception was the Nuveen NY Dividend Advantage Fund (ticker:NAN). This fund goes ex-dividend tomorrow (November 10) and will pay a dividend of $0.0655 per share. But the price went absolutely haywire today at 3:59:07 PM. There was a series of 21 trades that quickly “walked the price up” from 14.14 to 14.52 in three seconds. It almost looked like a “flash crash”, but on the upside, not the downside. NAN closed up 2.54% for the day.

If someone put in a big buy order to “capture the dividend”, they paid up by 38 cents to capture a six cent dividend, not the brightest thing in the world.

Another possibility is that a big short seller was forced to buy back his shares, because there were no more available shares to loan. This often occurs right around the ex-dividend date, and is one of the reasons why short selling of closed-end funds can be very risky.

Another fund that also “bucked the trend” today was Pimco NY Municipal Income III (ticker:PYN) which was up 2.17%. PYN went ex-dividend yesterday. I wonder if a forced short sale buyback occurred there as well, although the up move in PYN was a little more gradual and occurred over the last 90 minutes of the trading day. Again it looked like the price was walked up to 10.00 when a big block executed at 3:37 PM. It wouldn’t surprise me if this was also a forced short sale buyback.

Full Disclosure: No personal positions. Some clients are long NAN.

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4 responses to “Odd Pricing Behavior in Nuveen NY Dividend Advantage Fund (NAN)

  1. A similar, and even more pronounced, pattern occurred in IQN–the Invesco New York Quality Municipal Securities CEF (formerly, Morgan Stanley)–at the close yesterday.

    I originally assumed that it was an order entry/symbol error but that clearly is not the case if it happened in NAN as well.

    FYI, IQN doesn’t go XD for another week so the dividend capture theory is probably not on point.

    Would love to hear your follow-up thoughts!

    • El Jefe-
      I looked at IQN and it looks similar except it didn’t close at the high point of the day.
      A large market buy order came in at 15:58:46 that quickly walked up the price (18 separate trades) from 14.69 up to 15.03 in only eight seconds. Then in the last minute, the specialist walked the price down again to the close at 14.77.

      This example shows the danger of using large market orders with illiquid closed-end funds. Today, IQN was down again (probably because it now looks like the tax rate on the top bracket may not go up in 2011) and closed at 14.43. Yesterday’s late day buyer got a terrible execution, and I wonder if it may have been a short seller forced to buy back in. If not, whoever did the buying was reckless to use a market order.

  2. Any thoughts on the continual pounding of these Muni CEFs over the past couple of days? It seems like both the NAVs are coming down but also the spread is widening as some run for the exits. Is this the beginning of the seasonal widening?

  3. That’s 2 Pomo days running where the market has fallen.
    Expect to see bulls panic after a few more of these.
    The reverse Pomo effect will be very violent (on the downside of course).
    Get out whilst you can, those limit down days can be tricky to trade.

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