Seeking Alpha
Value, special situations, debt
Profile| Send Message| ()  

I have added the DWS Dreman Value Income Edge Fund (DHG) to my watch list. (For some odd reason, the fund calls itself an "edge" fund instead of a "hedge" fund).

The lead portfolio manager is David Dreman, an experienced value investor who has written several books on contrarian investing. DHG is a closed end fund that trades on the NYSE that combines several hedge fund like strategies:

1) "Hedge Strategy": Quantitative long/short portfolio that basically goes long low P/E value stocks and sells short high P/E growth stocks.
2) "Income Strategy": The goal of this strategy is to invest in low volatility, value-oriented, high dividend paying stocks and other income securities like high yield bonds, preferred stocks and REITs.

DHG was issued late last year and has gotten off to a terrible start. The reason I am watching it now is that it looks like a good way to bet on "regression to the mean" in several different ways:

1) The fund's income strategy has done poorly because they have invested in higher yield securities. High yield credit spreads have widened considerably in the last year.
2) The fund's hedge fund strategy has also done poorly since growth has outperformed value, and high P/E stocks have outperformed low P/E stocks.
3) The fund is invested heavily in financials and REITs. These sectors are both very depressed, but should eventually recover.
4) When DHG was originally issued it traded at a premium to NAV of 10%. Now it trades at a discount to NAV of 9%.

Aside from the above four "regression to the mean" ideas, I also like DHG because:

- Management has recently instituted a 5% share repurchase program.
- DHG has been paying monthly distributions of 0.117 or about 9% a year. These distributions help to recover some of the discount to NAV.

I would recommend that DHG be held in an IRA or tax deferred account.

Full Disclosure: I do not currently own DHG, but plan to buy it at some point in the future.

DHG 1-yr chart:

Source: Keeping An Eye On DWS Dreman Value Income Edge Fund