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Monday night, when the Nikkei average was down around 15%, I set up a watch list for some Japan ETFs and closed-end funds in case there were any good trading opportunities Tuesday. One fund that I have owned in the past is the Japan Smaller Capitalization Fund (NYSE:JOF). I usually try to buy JOF when it is selling at a discount of 10% or greater.

I thought that given the panic situation in Japan Monday night, there may be an opportunity Tuesday to buy JOF at an attractive discount to NAV.

As it turned out, there were so many “bargain hunters” out there, that JOF closed Tuesday at a whopping 9.4% premium above net asset value. No bargain here. Apparently, many investors bought JOF indiscriminately - using market orders without checking to make sure they were still getting an attractive price.

Here are the JOF closing prices and net asset values for the last three days:

Date

Closing Price

Net Asset Value

%Premium

March 11, 2011

9.09

9.41

-3.40%

March 14, 2011

8.43

8.56

-1.52%

March 15, 2011

8.37

7.65

+9.41% (!)

JOF is an aggressive fund with a lot of volatility. In the last shareholder report, the fund was 99.3% invested in equities. The fund held 143 securities, of which 132 were TSE First Section stocks, three were TSE Second section stocks, five were JASDAQ stocks and three were other small cap stocks. Many of the stocks in the JOF portfolio are very cheap and sell below book value.

I plan to monitor JOF over the next few weeks to see if any good buying opportunities occur. As I wrote this article (10:40 PM EST), the Nikkei average was up over 4%, so the JOF buyers that overpaid may be partially bailed out Wednesday.

Ticker: JOF Japan Smaller Capitalization Fund

  • Total Net Assets= 181.8 MM

  • Annual Distribution Rate= 0.94%

  • Dividend Frequency= Annual

  • Baseline Expense ratio= 1.44%

  • Premium over NAV= +9.412% 6 Month Avg Discount= -4.05%

  • Average 3 Mos Daily Trading Volume= 120,000 (about $1 MM)

Source: Are Investors Overpaying for the Japan Smaller Capitalization Fund?