Claymore Securities priced a new CEF last week called the Old Mutual Claymore Long Short Fund (OLA), writes Roger Nusbaum. The fund goes selectively long 120% in an attempt to have its picks beat the S+P 500. It shorts stocks with 20% of the fund. It also sells index call options against 80%-90% of the portfolio to start but can sell more or less as they feel is prudent. The can also sell options against individual holdings.
If the 80%-90% is unclear, I'll try to explain. One S+P 500 option struck at 1200, for hedging purposes, equates to $120,000. So if you had a $1.2 million portfolio of S+P 500 stocks, eight options struck at 1200 would hedge $960,000 out of the $1.2 million.
Based on how I read the fact sheet on the fund's site, this is how they plan to create income. This fund sure has a lot of moving parts. One thing that is true about the covered call CEF I own and use in my practice is that it is much simpler than OLA. My first reaction is that simpler is better. I want this piece of the portfolio to move very little and pay a nice yield.
OLA has a chance to be more volatile than the other 172 (hyperbole) covered call CEFs.
On the positive, I am continually impressed by Claymore's efforts to be innovative with these products. When any company creates a lot of products it is unlikely they will all be a hit but I am glad they are so committed to this.