Destra's 21% Dividend Hike: A Bet on a Dynamic Alpha Strategy

BOZEMAN, MT – December 09, 2025 – In a market where investors are perpetually hunting for yield, the Destra Multi-Alternative Fund (NYSE: DMA) just sent a powerful signal. The closed-end fund announced a substantial 21.6% increase in its monthly distributions, raising the rate to $0.1125 per share for the next ten months. This move translates to a striking annualized yield of approximately 15.46% based on its recent market price, a figure that demands attention in any portfolio.

While the headline numbers are compelling, the real story lies beneath the surface. This isn't a simple financial adjustment; it's the latest validation of a strategic pivot towards a sophisticated, technology-driven investment engine. The fund's management explicitly credits the performance of the 'Validex Dynamic Alpha' process, a proprietary hedged equity strategy managed by its sub-adviser, Validex Global Investing. This raises a critical question for professionals navigating the intersection of finance and technology: Is this a sustainable model for generating alpha, or a high-risk maneuver in a volatile market? Unpacking DMA's strategy reveals a compelling case study in how specialized, data-centric approaches are reshaping the landscape of alternative investments.

Behind the 'Dynamic Alpha' Engine

The distribution increase is the culmination of a deliberate portfolio transformation. Robert A. Watson, President of the Fund, noted, “We are pleased with the continued portfolio transformation and the performance that Validex has delivered to support the monthly distributions.” This transformation involves shifting more of the fund's assets into what Mark Scalzo, Portfolio Manager and CIO of Validex, calls “liquid hedged strategies.”

Validex Global Investing operates on a philosophy of identifying “dynamic points of growth inflection.” This approach suggests a departure from conventional analysis, focusing instead on proprietary research to uncover emergent turning points and unrecognized opportunities before they become mainstream. Their 'Dynamic Alpha' process, which forms the core of DMA's strategy, is designed to deliver performance that is non-correlated to the broad stock and bond markets. This is achieved through a multi-strategy framework that integrates what the firm calls Buffered Alpha, Hedged Alpha, and Concentrated Alpha strategies, all aimed at creating an asymmetric risk/reward profile—maximizing upside while mitigating downside.

The strategy's success is a testament to a growing trend in asset management: the strategic outsourcing of core investment functions to specialized, boutique sub-advisers. Rather than building a comparable internal capability, Destra has leveraged Validex's expertise in areas like asymmetric covered call writing, structured note innovation, and tail-risk management. This allows the fund to access a highly specialized, and likely technology-intensive, investment process designed to thrive in complex market conditions. The result is a portfolio diversified not only by asset class—including direct private equity and alternative credit—but also by strategy, with the Dynamic Alpha process as its performance-driving core.

A Pattern of Performance or a High-Wire Act?

This latest dividend hike is not an isolated event but part of a consistent upward trend throughout 2025. The fund began the year with a monthly distribution of $0.0725 per share, which was subsequently raised to $0.0825, then to $0.0925, and now to the current $0.1125. This steady progression suggests a building momentum and growing confidence from management in the underlying strategy's ability to generate cash flow.

However, investors must balance this recent positive performance with the structural realities of closed-end funds (CEFs). As of early December, DMA was trading at a market price of $8.73, a significant discount of nearly 15% to its Net Asset Value (NAV) of $10.22 per share. While such discounts are common in the CEF space and can present a buying opportunity, they also reflect market sentiment and can fluctuate, impacting total returns. Long-term performance data from Morningstar indicates that while DMA has generated positive absolute returns over the last decade, it has underperformed a general market index. This context is crucial, as it highlights that the fund's current outperformance is linked to the more recent strategic transformation under Validex, which began in 2016. Indeed, more recent data reflects this shift, with DMA's one-year total return ranking in the top quartile of its peer group as of late 2024.

With approximately $91.69 million in assets, DMA is a relatively small fund, which can offer agility but also carries different liquidity and risk profiles compared to larger institutional funds. The high distribution rate is a clear draw, but savvy investors will weigh it against the fund's discount, its long-term track record, and the inherent volatility of alternative strategies.

Navigating Yield, Risk, and Tax Complexity

In the broader CEF landscape, DMA's annualized yield of over 15% at its market price is exceptionally competitive. For comparison, many highly-rated CEFs currently offer yields in the 9% to 12% range. This positions DMA as a standout option for income-focused investors willing to venture into the alternative investment space. The fund's stated goal of non-correlation offers a diversification benefit that is particularly attractive during periods of traditional market stress.

However, high yield often comes with high complexity, particularly concerning taxes. As with most CEFs, the tax character of DMA's distributions is not determined until after the fiscal year-end. The monthly payments investors receive could be classified as ordinary income, short-term or long-term capital gains, or, critically, as a Return of Capital (ROC). The fund itself acknowledges this, stating that a portion of each distribution may come from sources other than net investment income.

ROC is not a 'free lunch'; it is a non-taxable distribution that reduces an investor's cost basis in the fund. While this defers the tax liability, it results in a larger capital gain (or smaller loss) when the shares are eventually sold. Investors must scrutinize the Section 19(a) notices issued by the fund, which estimate the sources of the distribution, and ultimately rely on the year-end Form 1099-DIV for definitive tax reporting. Understanding whether the distributions are being funded by investment profits or by returning the investor's own principal is a critical piece of due diligence. This complexity underscores the necessity for investors to consult with their tax advisors to fully grasp the implications of investing in a managed distribution vehicle like DMA.