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The 13 closed end fund (CEF) types on average were up 0.2% for the week ending 6/26/09. The S&P 500, as measured by the SPDR S&P 500 ETF (SPY), registered a decline of 0.2%. On an aggregate, unweighted basis, the weekly price for 641 CEFs was +0.1%. The weighted Claymore CEF Index registered unchanged for the week. CEFs’ aggregate, unweighted current distribution yield is 8.4% and is trading at a 6.4% discount.

The Eqcome CEF Fear Index, on an aggregate, unweighted basis, was flat with price in NAV, both declining 0.3%. This is in contrast with the CBOE Volatility Index (VIX) which registered a significant drop of 7.4%. The large drop in the VIX was not accompanied by an increase in the S&P 500. (The VIX has a tendency to fall when the market rises, and visa versa.)

CEF Weekly Performance: With the CEF averages near the flat-line, the spread between the best and worst performing groups was narrow. The CEF fund types demonstrated a fixed-income bias as the market gapped down earlier in the week only to later gain its composure and close off slightly.

The weekly change in price and the premium/discount was generally directional. GenEqFnds declined more than the change in discount. Additionally, single state and national muni funds typically trade in tandem. However, last week there was a bifurcation.

Weekly Comparisons: For sake of weekly comparison, the performance of the S&P 500 was off slightly as assets classes turned in a mixed performance. The upcoming week is chuck full of economic releases ranging from construction spending, home sales, ISM non-manufacturing, and factory orders. This data should provide a good look at the economy and could send equity markets reeling.

The debt segment (blue) of the ETF market posted slight gains in light of the equity seesaw during mid-week and solid government debt auctions. Vanguard Total Bond (BND), iShares Muni fund (MUB) and iShares mortgage backed securities fund (MBB) registered positive price changes of 1.2%, 0.5% and 0.9%, respectively. This was generally consistent with their CEF counterparts—with the noted exception of National Munis.

The commodity segment (red) of the markets presented a mixed picture. The US dollar (USD) opened the week strong and gapped down twice as the Fed continued it near zero interest rate policy. While Gold (GLD) was up modestly, 0.4%; oil, as measured by the US Oil ETF (USO), declined in the face of a weaker dollar—intimating slower global economic growth.

Commercial real estate, as measured by Vanguard Real Estate Investment Trust ETF (VNQ), formed a “V” during the week. This is the third week in a row that commercial real estate generated losses, down 1.9% for the week. Commercial real estate remains in the twilight zone.

CEF High & Low: For the sake of data points, PIMCO High Income Fund (PHK), a high yield debt fund, was one of the best performing CEFs, up 9.9%. Its performance is somewhat perplexing given the fact that it is trading at a 56.1% premium. This is a significant departure from its historical premium/discount.

One of the worse performers of the week was another Pimco sponsored CEF, PIMCO Municipal Advantage Fund, Inc. (MAF) down a whopping 65.2%. MAF is going through a liquidation and went ex-dividend on the 26th with regards the first to two liquidating distributions; this in the amount of $6.20 per share.

CEF Focus for the Week: Based upon a limited set of facts, I would probably be reducing my position in PIMCO High Income Fund (PHK). While the fund is going through a metamorphosis, with the legendary Bill Gross taking over the reigns at the fund, the record high premium makes me nervous. While the redemption of its ARPs and the potential resumption of the dividend might make investors palpitate, I haven’t seen any insider buying of the PHK. I would think that if the premium is justified that these are savvy enough investors to take advantage of the disparity. Again, I haven’t studied the situation and my reaction is entirely visceral. Tread cautiously.
Disclosures: Long SPY, PHK

Source: Spread Between Best and Worst Performing CEFs Narrows