Korea Equity Fund Shareholder Letter May Lead to More Useful Fund (CEFs: KEF, KF; ETF: EWY)

David Nierenberg filed today that he has sent a letter to the Board of the Korea Equity Fund (KEF) urging them to either change their objectives to focus on Korean small and micro cap companies, or merge with the Korea Fund (KF). The Korea Equity Fund was in the news earlier this summer because the Board had a proxy battle with Harvard, in which shareholders voted against liquidating the fund. The Board most likely will take the suggestions under serious consideration because the management company David Nierenberg controls is one of the fund's largest shareholders, and his support was important in helping the fund avoid being liquidated.

Of the two suggestions, I think changing the focus to small and micro cap companies is the far better option. This could give the fund a unique niche where they could take advantage of the stable asset base that comes with the closed-end structure. If KEF merged with KF, expenses may be lower, but we will still be left with a situation where, barring a wide discount, most investors will be better off investing in the iShares MSCI South Korea Index Fund (EWY) rather than investing in the remaining Korea focused closed-end fund.

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