While a closed-end fund’s (CEF) share price is subject to the vagaries of the stock market, the change in a CEF’s NAV per share is more a function of the skills of its investment manager.
Exploiting Inefficiencies: Exploiting inefficiencies is one means an investor can employ to generate “alpha”, i.e. superior returns. The following is a list of 5 CEFs that generated the most attractive (lowest) percentage change difference between the price and its NAV per share year-to-date (YTD). This means the percentage change in price lagged its NAV. (see highlighted “green” section below)
Click to enlargeHypothesis: The main investment supposition is that if the price change of a CEF lagged the change in its NAV, the price may advance at a greater future pace to make up for the its previous lag relative to its peers.
Criteria: The criteria for inclusion on the list were: 1) CEFs with a market cap of greater than $100 million; 2) trading at a discount; 3) a positive NAV per share YTD change.
Comparison: Of the 171 CEFs that fit the criteria, the average price appreciation for that sample was 9.8% versus an average NAV change of 6.3%. The average spread was 3.6%.
Top 5: This is in comparison to the top 5 CEFs listed in the table that experienced an average price decline of 1% versus an average NAV increase of 7.4%. This generated an average difference of a negative 8.4%.
Disclosure: (Owns a diversified portfolio of CEFs)