When In Doubt Go To Cash

Jul 8th, 2009 – Comment

  Hi Lou, Do you have any comment on Enervest Diversified Income Fund? I bought it in 2001 and it has performed well for me in terms of distributions, but it has cut its distribution, its share price has fallen, and management has changed. I’m wondering if it’s worth holding onto it to see if […]


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Hi Lou,

Do you have any comment on Enervest Diversified Income Fund? I bought it in 2001 and it has performed well for me in terms of distributions, but it has cut its distribution, its share price has fallen, and management has changed. I’m wondering if it’s worth holding onto it to see if it comes back up, or if I should take my remaining money and run.

Thanks,

Florentia

 

Hi Florentia,

Enervest Diversified Income Trust ( EIT.UN TSX)  is an actively managed portfolio of mostly trusts and bonds with about 26% of the fund invested in common stock. In April of  this year units in EIT were rolled back  3 for 1. At its current level distribution of $0.15/ month the units are yielding just over 16%.

 

 

eit

The chart shows that there was a nice recovery from  the aggressive selling that hit the entire market last fall. But like all things in the investment universe you have to watch the trend and it appears that the ride to the upside is fading.

 

 

 

eit2

The six month chart illustrates the current trend in the units of EIT. Clearly we have hit resistance and if you draw the trend line on the advance from the March lows we can see that the trend line has been breached. Which is a caution flag and why I suspect you have written.

Second thing to notice is the MACD which turned below the signal line in the middle of June indicating a shift in momentum to the downside.

Finally at the close of trading on Tuesday July 7  the units are now testing support on its 50 day moving average. If we are looking for a reason to hold  then we need it to catch a bounce from these levels.

From the tone of your email Florentia it sounds like you want to preserve your capital and when I sense that in an investor I always recommend that you go to cash.  Look at your capital as a fine race horse. Its been racing for you since 2001. At some point you want to give the horse and rider a rest.

When you have cash you are free to make another decision but right now your gut is saying take profits and nothing in the charts is telling me otherwise.

Happy Capitalism!

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