At the close of U.S. markets on September 8, Morgan Stanley's India Investment Fund (IIF) was trading at premiums it has never traded at before, during its 12-year lifetime. Usually, this signals a top at least for that fund, and often in the sector, but who knows, "this time may be different..."
At the end of Thursday, IIF's closing share price was approximately 19% above IIF's closing NAV. This is higher than it has ever been (chart below; click on it to see larger version).
Closed-End Funds can trade at a premium or discount to net asset value (NYSE:NAV). Sentiment affects premiums & discounts. Sentiment towards India has been extremely positive lately (a contrarian bear sign). Since investing in India became trendy, the India Fund (IFN) has gone from a 20% discount to a 5%-10% premium. "I have noticed a tendency for the relative discount of sector funds to widen when sectors have fallen out of favor," says Gregg Greenberg of TheStreet.com.
Unfortunately for contrarian investors, these funds cannot be shorted.
Prior articles Emerging Markets as a Hedge, Bill Cara Calls a Top in the India Closed-End Funds, and India’s Sensex Moving Averages Show Huge Momentum are related to this article.