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JS Online: Closed-end funds open new area of investing

This is an article about an investment manager that is using closed-end funds (CEFs) that invest in energy MLPs, writes Roger Nusbaum.

I first wrote about these back in December 2004. In that article I expressed concern about sentiment doing wacky things to the premium/discount of the market price compared to the NAV. For the chart below I picked some random MLPs for a comparison. FMO, the CEF mentioned in that first article is about unch in the last six months but the individual names are a little or lot.

According to the ETFconnect profile for FMO, the fund was at a 5% premium at inception (sales charge perhaps?) and is now at a 2% discount. So a 7% swing at a time where somehow the NAV stayed flat.

So now what? Still not a fan. If you want to have exposure here I would avoid the funds, the article lists a couple of others. I would put 75% of what you have earmarked for this group into something like KMP (client holding) which is relatively tame and 25% of the allocation into any of the hot potatoes mentioned on the TV shows, that you have researched. There are other tame ones beside KMP. I sold the last of my hot potato MLPs during the winter. Personally it is not an area where I want to be but I think the split I proposed is a better plan, for someone who wants to take the other side of that trade from me, than an MLP CEF.

Source: JS Online: Closed-end funds open new area of investing