An economics professor and a grad student are walking along the sidewalk, and the grad student spots a twenty dollar bill on the sidewalk. He says, “Hey professor, look, a twenty dollar bill.” The professor says, “Nonsense. If there were a twenty dollar bill on the street, someone would have picked it up already.” They walk past, and a little kid walking behind them pockets the bill.
If anyone you know is an efficient market proponent, all you have to do is point them to the closed-end fund space. Fear and greed play out in that arena as discounts and premiums (to NAV). Currently, there are a few opportunities popping up that are interesting.
ETF Connect has a great feature that lets you sort by discount and premium. The Herzfeld Carribean Basin Fund (CUBA) continues to trade at a large premium +40%, but finding any shares to short could be problematic. DWS Dreman Value Income Hedge Fund (DHG) is managed by one of the best names in the business, but was getting pummeled to a worse than -20% discount and seems to have settled to around -10%. It is a l/s fund that is about 30% leveraged, and has a higher management fee of 1.42% The Spain Fund (SNF) is a Spanish CEF that trades at a 20%+ premium. A simple strategy would be to short SNF and buy the Spain ETF (ETFs rarely trade away from their NAV).
The Spain CEF highlights a characteristic you want to see when searching for CEFs at discounts/premiums; the price oscillates around the NAV on both the positive and negative side (some funds chronically trade at a discount with no catalyst for closing that gap). James Altucher has some good coverage of closed-end fund arb in one of his recent books (Supercash), and also touches on a CEF portfolio for his Mom at Stockpickr. SNF has traded at over 100% premiums and greater than -20% discounts. Take note of the five-year period in the 90s when it traded at a constant discount.
Chen & Steers Closed End Opportunity Fund (FOF) is interesting since it has a fund of funds model to invest in other closed end funds. This could be a great option for someone looking to buy a diversified portfolio. It holds 94 other funds, many of which are trading at discounts. In effect, you get a double-dip on the discount effect (and also a double dip on management fees which tally to ~ 2%). Currently it is at a ~ -3% discount, and if that ever gets larger, the fund could be an interesting option.
Brett Arends has a good article on TheStreet.com about some other CEF's that are particularly attractive. He has another article out on an emerging debt fund trading at a discount that results in a 12% dividend yield.
Below is a table I whipped together of some various CEFs. The bottom section is some of the bigger buy-write funds. Data is from 8/27 close.