Six months ago, I wrote about a way of screening closed-end funds (CEFs), and my testing of the system at marketocracy.com.
That article, A System for Trading Closed-End Funds, rates CEFs by dividing the discount by the expense ratio. So, higher is better (high discount divided low fees). The system also requires insider buying, to get a qualitative valuation of the fund. The test-fund continues to outperform the S&P 500, beating the index by 4% in the last 6 months.
Marketocracy maintains a public page, which shows performance and stats such as beta, turnover, etc. Here is the chart:
click to enlarge images
The fund of CEFs is the thick orange line. The green, olive, and blue lines are the S&P 500, DJIA, and NASDAQ 100 respectively. The purple line is Marketocracy’s M100 index.
Perhaps the most interesting feature of the system is what I think of as the Return on Sweat-Equity [ROSE]. The ROSE is the ratio of your returns to how much work you have to do to get those returns. Buy-and-hold investing requires a low investment of sweat-equity, whereas day-trading requires a lot of sweat-equity. If the returns are the same, then buy-and-hold will have a higher ROSE. Pretty simple.
This system for trading CEFs has a pretty high ROSE. Typically, I check the portfolio once a month or less. The beta (volatility) is usually below 1 and the annual turnover is around 50%. Those of us who enjoy investing, but do other stuff like hold jobs, are very interested in beating the indices on ten hours a week or less!
Coincidentally, the top buy of the Marketocracy gurus in the last week is SWZ--a CEF specializing in Switzerland. It qualifies as a buy in this system as well. Here's a current list of some (not all) CEFs that have high discounts relative to their expense ratios (fees), and recent insider buying. I’ve included the Morningstar rating when available, although it isn’t part of the system.
Investing in funds tends to use a “top-down” or macroeconomic approach to investing, and this is no exception. That is also conducive to earning a high ROSE, as one can “research” some macroeconomics simply by keeping up with the daily news.
Disclosure: I own SWZ, MXF, ECF.