CEF April Monthly Review: Real Estate Funds Rock 12 comments
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For the month of April, average share price performance for CEF fund types was up 10.7% (the aggregate, unweighted average of 647 CEFs was up 10.5%) versus 9.9% for the S&P 500, as measured by SPDRs S&P 500 ETF (SPY). (YTD, 643 CEFs on an aggregate, unweighted basis had a Distribution Yield of 9.8%, a Discount to NAV of 7.2% and a 13.8% share price appreciation.)
Special Equity Funds advanced 20.9% based upon the strong appreciation of real estate CEFs. (Such funds make up over 40% of the SpecEqFnds category). The top 6 performing SpecEqFnds for the month were real estate funds with an averaged advance of 65.5%. By comparison, the Vanguard REIT Index ETF (VNQ) was up 30.7% for the same period. The beaten down commercial real estate sector’s reprieve is being attributed to successful REIT equity offerings allowing REITs to pay down debt and increased likelihood of TALF extending loan “guarantees” to 5 years helping facilitate liquidity in the $700 billion CMBS sector. (The recent REIT equity offering may result in lower distribution levels per share in the interim as a result of dilution.)
click to enlarge
The CBOE Volatility Index (^VIX) continues to recede; down 17.3% for the month and has now fallen into the 30’s. This drop in the “fear index” support investors shunning the more conservative munis and investment grade fund types in favor of previously riskier fund types as preferred and equities. The average difference between CEF share price increase and NAV increase for the month was 2.5% indicating positive investor sentiment towards this market segment.
For sake of weekly comparison, SPDR S&P 500 (SPY) was up 9.9%. In the debt category, Vanguard Total Bond (BND) and iShares Muni Fund (MUB) were up 0.1% and 2.0%, respectively; the iShare MBS Bond ETF (MBB) was off 0.1%. With regards to commodities, Gold ETF (GLD) stepped down an additional 3.3%, while oil, as measure by the US Oil ETF (USO), dropped 1.4%. Oil prices feel like they are struggling to advance.
As would be expected, the best performer for the month was a real estate CEF. Cohen & Steers Quality Income Realty (RQI) was up 77.6%. The Gabelli Global Gold, Natural Resources & Income Trust (GGN) was down 18.4%. Boulder Growth & Income Fund (BIF), up 10.1% for the month, is being placed on the “Watch List” with positive implications. (Click here for report on BIF).
Disclosures: Author owns SPY, GLD, USO, RQI and BIF
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This article has 12 comments:
It may be at or near the time to sell the high flying REIT CEFs and buy with 90% or so of the resulting capital, VNQ.
Personally, I am much chagrined to have missed this run-up. I was early to spot REITs as oversold and bought while they were still falling; early to cash in when they started bouncing back; and now maybe too late for what's left of the bounce. OTOH, a healthy does of panic could still return to this sector--it certainly is riddled with problems, and it's not a sure thing that TALF will cover them all.
seekingalpha.com/artic...
The press did not pick up on this until the end of the winter and with retail clamoring for yield, demand finally stirred up. It is ironic as the data suggests that option selling of funds are the ones that most steadily experience NAV erosion over time.
Dan Plettner's crusade with BIF reminds me of the horrendous situation at the Seligman funds where the entire family funds during were in the bottom percentiles of their categories consistently throughout the great run of the eighties and nineties. In spite of the fact of high fees, bad performance, continual bashing by the newsletter writers and personal financial journalists, management still held on through the decade.Does anyone know what happened to that family of funds?
It would not surprise me if the experience with BIF takes a similiarly lengthy course. The actual history of "open-ending" closed end funds has not been one characterized by overwhelming shareholder victory.
Having said that, I wish Dan the best of luck. The lesson of the last few years is that shareholders deserve better.
I agree that commercial real estate securities may be ahead of themselves given their significant recent run-up. No need to chase them here as there are still significant pending issues.
Thanks for the encouragement.
Joe Eqcome
On May 03 09:44 AM jse17 wrote:
> Your work is appreciated Joe!
>
> It may be at or near the time to sell the high flying REIT CEFs and
> buy with 90% or so of the resulting capital, VNQ.
You're correct that BIF is not a real estate related CEF. What I've try to do in these weekly reviews, in addition to provide an overview on the CEF market segment, is to also provide an investable idea.
I thought that BIF might be some of interest as it has been brought to our attention by Dan Plettner in this blog. It’s my intention to do some more work on it and for other who might contribute provide some feedback.
Reason for my interest in BIF is: trading a significant time weighted historical discount; has a large position in Berkshire (BKR); has a significant slug of cash. Dan is raising investors’ consciousness regarding actions that management might take do to close the discount gap. For these reasons I think it may be worthy of further analysis. (For the purpose of disclosure, I own a small holding in BIF and may increase that position. While I’m happy to risk my own capital on an incomplete idea, I don’t think it is fair for other people to do so until the idea can meet the more rigorous criteria.)
I thought it was worth of note but short of a recommendation as I'm still accumulating info.
Thanks for your comments.
Joe Eqcome
On May 03 03:05 PM Alan Young wrote:
> Good article, although the last paragraph on BIF is non-sequitor
> (since BIF no longer holds an appreciable amount of real estate).
>
>
> Personally, I am much chagrined to have missed this run-up. I was
> early to spot REITs as oversold and bought while they were still
> falling; early to cash in when they started bouncing back; and now
> maybe too late for what's left of the bounce. OTOH, a healthy does
> of panic could still return to this sector--it certainly is riddled
> with problems, and it's not a sure thing that TALF will cover them
> all.
Your observations matches the numbers in my database.
Opt/Arbitrage funds are classified in the “OtherFnds” category. There are 29 "OtherFnds" in my data base of which are 12 are classified as “Opt/Arbitrage”. Those 12 Opt/Arb funds are trading at a flat prem/discount (-0.6%) as of May 1st. Five of the 12 are trading at a premium (7.5%) while the balance at a discount. The greatest discount of the group is Nicholas-Applegate Intl Prem & Strategy Fund (NAI) at a discount of 15.8%. Don’t know much about this CEF. Do you have a view on NAI?
Joe Eqcome
On May 03 12:05 PM mavericks wrote:
> Wondering what category buy/write (call option writing) equity CEF's
> fall into? Many have gone to low single digit discounts if not absolute
> premiums! Saw the same thing happen in Jan. and we all know how that
> turned out.
Your observations regarding the lack of an impartial advocate for retail CEF investor is both a true and sad commentary. Even when the brokerage firms had CEF coverage it was significantly biased; it was no more than a marketing tool for CEF IPO’s than independent research. Remember, the CEF industry is dominated by a few large fund sponsors who are likely to do “one off” funds. If you were an underwriter, you’d want to nurture the sponsor as they provided a nice steady stream of investment banking fees through a variety of CEFs develop by the sponsor.
Additionally, the Closed End Fund Association (CEFA) is financially supported by the CEF sponsors. So, while CEFA provides decent information on the CEF market segment, as provided by Lipper, it can’t provide independent research. This is not a criticism of CEFA, just a fact.
As it relates to BIF, if management is not maximizing the value of the CEF for the benefit of its shareholders’—as Dan suggests, then we should collectively apply pressure to have the policy or management changed. Whether Dan’s appeal will fall on deaf ears will be a function of the strength of his argument. It’s something which I’m going to spend some time looking into. (As a point of disclosure, I do own a small holding of BIF and I’ve had e-mail exchanges with Dan.)
Joe Eqcome
On May 03 10:33 PM User241885/(FAMCO) wrote:
> Maverick's question about the closing gap on NAV discounts on buy/write
> funds may have to do with the huge per-centage distributions as the
> year end sell-offs pushed yields in to the high teens. There is little
> or no brokerage sponsorship left so even the quality non-leveraged
> names like Eaton Vance languished.
>
> The press did not pick up on this until the end of the winter and
> with retail clamoring for yield, demand finally stirred up. It is
> ironic as the data suggests that option selling of funds are the
> ones that most steadily experience NAV erosion over time.
>
>
> Dan Plettner's crusade with BIF reminds me of the horrendous situation
> at the Seligman funds where the entire family funds during were in
> the bottom percentiles of their categories consistently throughout
> the great run of the eighties and nineties. In spite of the fact
> of high fees, bad performance, continual bashing by the newsletter
> writers and personal financial journalists, management still held
> on through the decade.Does anyone know what happened to that family
> of funds?
>
> It would not surprise me if the experience with BIF takes a similiarly
> lengthy course. The actual history of "open-ending" closed end funds
> has not been one characterized by overwhelming shareholder victory.
>
>
> Having said that, I wish Dan the best of luck. The lesson of the
> last few years is that shareholders deserve better.
Transposed Berkshire Hathaway ticker symbol in comment. Correct symbols should be: BRK.A & BRK.B
Joe Eqcome
On May 04 09:51 AM Joe Eqcome wrote:
> Alan Young
>
> You're correct that BIF is not a real estate related CEF. What I've
> try to do in these weekly reviews, in addition to provide an overview
> on the CEF market segment, is to also provide an investable idea.
>
>
> I thought that BIF might be some of interest as it has been brought
> to our attention by Dan Plettner in this blog. It’s my intention
> to do some more work on it and for other who might contribute provide
> some feedback.
>
> Reason for my interest in BIF is: trading a significant time weighted
> historical discount; has a large position in Berkshire (seekingalpha.com/symbo...);
> has a significant slug of cash. Dan is raising investors’ consciousness
> regarding actions that management might take do to close the discount
> gap. For these reasons I think it may be worthy of further analysis.
> (For the purpose of disclosure, I own a small holding in BIF and
> may increase that position. While I’m happy to risk my own capital
> on an incomplete idea, I don’t think it is fair for other people
> to do so until the idea can meet the more rigorous criteria.)
>
> I thought it was worth of note but short of a recommendation as I'm
> still accumulating info.
>
> Thanks for your comments.
>
> Joe Eqcome
>