CEF Week in Review: Riskier Fund Types Rule

For the week ending of May 8th, average share price performance for CEF fund types was up 4.0% (the aggregate, unweighted average of 643 CEFs was up 3.8%) trailing a 5.8% advance 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 8.8%, a Discount to NAV of 7.0% and an 18.0% share price appreciation)

The sigh of relief, as measured by the 36.1% jump in KBW Bank Index (^BKX), over the banks’ stress test not being as bad as feared, propelled the Preferred Funds 7.8%, as the preponderance of prefers issues are bank related. Other equity-oriented CEF fund types also advanced as investors’ fear gauge, The CBOE Volatility Index (^VIX), dropped 39.7% since March 2^nd. The Eqcome CEF Fear Index registered a 44.4% decline YTD. Debt fund types tend to underperform in this environment.

For sake of weekly comparison, SPDR S&P 500 (SPY) was up 5.8%. In the debt category, Vanguard Total Bond (BND) and iShares Muni Fund (MUB) put in a flattish performance: up 0.4% and down 0.3%, respectively; the iShare MBS Bond ETF (MBB) was unchanged. With regards to commodities, GoldETF (GLD) stepped up 3.5%, while oil, as measure by the US Oil ETF (USO), surged 9.7%. Real Estate as measured by the Vanguard REIT ETF (VNQ) continued it strong advance with an 8.8% increase. Taken as a whole, the performance of the aforementioned ETFs suggests investors are anticipating a recovery in the next 6 months.

The theme of an impending economic recovery with a concomitant surge in commodity prices may have been the cause for the 36.5% jump Templeton Russia and East European Fund Inc. (TRF) last week. One of the worst performers of the week was BlackRock New Jersey Municipal Bond Trust (BLJ) was down 6.4% as investor shunned safety.

The investable idea for the week is Boulder Growth & Income Fund Inc. (BIF) up 3.7%. Insiders have increased their holdings by a third to 4.3 million shares to 16.7% of shares outstanding. The shares were accumulated at an average discount of approximately 20%. Its historical time weighted discount is -2.4%. (See: “Insider Buying at BIF: A Case of Manipulation or Hallucination?”)

Disclosures: Long: SPY,GLD, USO, BIF

Comments

[oldman:]

you are making the mistake of an inexperience investor by using short term and rear view mirror performance. I'm surprised someone with your experience would make this comparison.

May 10 11:25 AM

[Alan Young:]

Joe, your analysis of BIF is superb. More comprehensive detail and less axe-grinding than I've seen in similar articles. Well done.

About TRF: The bullish commodity market explains why Russia-oriented funds would go up, but not why they would trade at a 59% premium! There are easier ways to own Russia. This warrants further investigation.

May 10 04:33 PM

[oldman:]

Stewart R. Horejsi

Anything with this name I will never own. Do your own DD.

May 10 09:45 PM

[sskell:]

Isn't this pretty straightforward: they knew that if they eliminated the distribution the share price would collapse, allowing them to buy it a lot cheaper. They can reinstate the distribution anytime; if I were as cyncial as these guys seem, I'd even raise it from its previous level to suck in all the retail investors that love a big distribution yield regardless of its source or sustainability.

May 10 09:58 PM

[Dan Plettner:]

I've done extraordinary DD on not only the man, but the entire situation. So much so that I am now appropriately perceived as an "axe-grinder"; my due diligence left me so disturbed that I could not hide my disgust. Joe too has done due diligence, evidenced by his graphical depiction of the myriad of Horejsi Trusts. Joe has learned with professional writing experience to withhold personal judgments from writings about investments because sentiment and investment interests frequently vary.

I concur with Joe's ultimate investment thesis, if not every detail. Owning BIF right now does not require believing in Stewart R. Horejsi as a human being. BIF shareholders who perceive the same problems with Horejsi(s) and the current Board of Directors, can benefit themselves by using their Proxy power rather than selling their stakes (back to Horejsi Family Interests) at 78 cents on the dollar.

As an aside, those staying abreast of everything on BIF may be interested to know that Part III is now available in Instablog form. I have not yet decided to submit it as an article here on SeekingAlpha.


On May 10 09:45 PM oldman wrote:

> Stewart R. Horejsi
>
> Anything with this name I will never own. Do your own DD.

May 10 11:02 PM

[Joe Eqcome:]

Oldman

Since the CEF market segment is so diverse, I believe that by looking at the trends in the sub-sector an investor can get a better understanding of the larger investment picture.

Based upon the mosaic theory of investing, by touching all parts of the elephant you can get a better understanding of its size and composition. This CEF sub-sector trend analysis is just one of those component parts.

Additionally, I try to mix up the weekly commentary by sometimes looking at the weekly and other times reviewing the month or YTD.

This maybe useful to some and to others it may be of little value. Ultimately, the marketplace will decide.

Joe Eqcome




On May 10 11:25 AM oldman wrote:

> you are making the mistake of an inexperience investor by using short
> term and rear view mirror performance. I'm surprised someone with
> your experience would make this comparison.

May 11 11:59 AM

[Joe Eqcome:]

Alan Young

My mention of the best and worst performer in the weekly commentary is only designed as a data point and I hope they're not being taken as recommendations. It is designed to see what's moving and to facilitate further inquiry and hopefully drawn some conclusions.

You're correct in the fact that there are probably better plays on commodities and the recovery of those commodity driven economies such as Russia than Templeton Russia & Eastern Europe Fund (TRF). Other CEF alternatives that touch on Russia are: Central Europe and Russia Fund (CEE) and Morgan Stanley Eastern Europe Fund (RNE) both trading at discounts.

Thanks for you kind word on BIF.

Joe Eqcome


On May 10 04:33 PM Alan Young wrote:

> Joe, your analysis of BIF is superb. More comprehensive detail and
> less axe-grinding than I've seen in similar articles. Well done.
>
>
> About TRF: The bullish commodity market explains why Russia-oriented
> funds would go up, but not why they would trade at a 59% premium!
> There are easier ways to own Russia. This warrants further investigation.

May 11 12:19 PM

[Joe Eqcome:]

Sskell

If BIF's management is as cynical as you believe—and I believe there may be evidence they are—wouldn’t those that invested now prior to the reinstatement of the dividend be a net beneficiary of that future policy?

My long term investment policy (12 months or more) criteria are: 1) Do I trust management? 2) Can management make me money? 3) Never reverse the order of "1" and "2".

For short-term trade of 6 to 9 months—as I see this opportunity, I’ll occasionally make an exception to that policy if the story's compelling. The fact I’ll need to take a soapy, hot shower post investment notwithstanding

Anyhow, it will be interesting to see how this plays out.

Joe Eqcome


On May 10 09:58 PM sskell wrote:

> Isn't this pretty straightforward: they knew that if they eliminated
> the distribution the share price would collapse, allowing them to
> buy it a lot cheaper. They can reinstate the distribution anytime;
> if I were as cyncial as these guys seem, I'd even raise it from its
> previous level to suck in all the retail investors that love a big
> distribution yield regardless of its source or sustainability.

May 11 12:42 PM