Innovation In Closed-End Funds

Includes: LGI, LOR
by: Roger Nusbaum

Roger Nusbaum submits: The New York Times has a couple of interesting articles today. One was about Closed End Funds. There really isn't anything new, but it does point out that CEFs are a source of innovation. In 2005 the big thing was call writing funds. As much as I think these have a place in a diversified portfolio I was concerned, from the start, about too much supply being created. The article acknowledges this and notes that there will probably be less new CEFs across all categories in 2006. While I don't know about that, less call writing funds seems like a good bet.

So if there will be fewer call writing funds, what will be the next type fund? A few weeks ago I wrote about two CEFs managed by Lazard that use currency products in combination with stocks in an effort to enhance returns and reduce volatility. I think use of currency products will emerge as the next new asset class for do-it-yourself investors to integrate into their portfolios. I would bet that ten years ago most do-it-yourselfers did not think about commodity exposure, now how many do? It will be the same with currencies.

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