Last Week's CEF Seesaw

The 13 closed end fund (CEF) types on average were down 1.7% for the week ending 6/19/09. The S&P 500, as measured by the SPDR S&P 500 ETF (SPY), registered a decline of 3.2%.

On an aggregate, unweighted basis, the weekly price decline for 641 CEFs was -1.4%. The weighted Claymore CEF Index registered a 2.0% decline for the week. CEFs’ aggregate, unweighted current distribution yield is 8.5% and is trading at a 6.5% discount.

The Eqcome CEF Fear Index, on an aggregate, unweighted basis, increased slightly for the second week in a row with price declines exceeding declines in NAV. This is in contrast with the CBOE Volatility Index (VIX) which off a modest 0.6%. (The VIX has a tendency to fall when the market rises, and visa versa.)

CEF Weekly Performance: CEF fund types performed in the expected fashion. With the equity markets off, those CEFs that focus on fixed-income investments registered better relative performance. The Preferred fund type was whipsawed from the previous week as financials continued to gyrate in the face of emotional ebb and flow of financial regulation. With financials recovering later in the week, certain preferred issues may get a better reception from investor next week. World Equity funds took a breather after impressive YTD performance.

The largest weekly spread between change in price and premium/discount was for Preferred and Convertibles fund types, 2.5% and 2.2%, respectively.

Weekly Comparisons: For sake of weekly comparison, the performance of the S&P 500 was off 3.2% during an option expiration week. The market never really recovered from the Tuesday/Wednesday sell-off relating to the formal introduction of new financial regulations.

The debt segment of the ETF market posted gains in light of the equity doldrums: Vanguard Total Bond (BND), iShares Muni fund (MUB) and iShares mortgage backed securities fund (MBB) registered positive price changes of 0.1%, 0.2% and 0.3%, respectively. This was generally consistent with their CEF counterparts.

The commodity segment of the markets experienced downward pressure. The US dollar (USD) opened the week strong and gapped down on Tuesday never to recovery. While Gold (GLD) was off modestly, 0.3%; oil, as measured by the US Oil ETF (USO), reversed the previous week’s rise and dropped 3.7%. Oil prices fell below $70 per barrel since June 8^th.

Commercial real estate, as measured by Vanguard Real Estate Investment Trust ETF (VNQ), slid through the week. It extended last week’s losses by an additional 6.7%. Commercial real estate remains in the twilight zone.

Many believe commercial real estate is ground zero for the next banking catastrophe. Ironically, many of the larger public REITs have bolstered their balance sheets and may be in position to benefit as commercial property prices make attractive acquisition points. This will continue to be a volatile, tradable sector for at least the next 6 months. Ultra Real Estate Proshares (URE) is a highly liquid vehicle to use for trading purposes.

CEF High & Low: For the sake of data points, BlackRock Muniyield Arizona Fund, Inc. (MZA), was one of the best performing CEFs, up 10.2%. BlackRock, its sponsor, announced partial redemption of ARPS with tender option bonds (TOBs) for 49 of its 60 tax-exempt CEFs.

One of the worse performers of the week was Templeton Russia and East European Fund Inc. (TRF), down 25.4%. TRF, a commodity play, is up 121.8% YTD. It is taking a breather from its torrid rise. TRF is now trading at its highest premium ever at 74.4%. Unless, its assets are not being accurately and timely priced, this level would make one nervous.

CEF Focus for the Week: John Hancock Patriot Prem Div Fund II (PDT) may be a CEF for more conservative investors in this vacillating market. It invests in preferred and utility stocks. There has been more interest in utility stocks as a defensive play. PDT has recently raised its monthly distribution in May of this year, which is always a positive sign of viability. It’s trading at a 9.36% distribution yield and at an 11.4% discount. It’s been operational since 1989 and has generated a cumulative positive return both on share price and NAV. Its fees are relatively high.

Disclosures: Long URE & SPY

Comments

[jeandit75:]

Good luck on your URE investment.

Jun 22 06:32 AM

[Joe Eqcome:]

Jeandit

So, you're not familar with shorting stocks?
Good luck with your investments!

Joe Eqcome

Jun 22 08:55 AM