Closed End Fund Fire Sale

There are some amazing values now in closed end funds. The discounts to NAV have widened dramatically across the board. It appears that one or more large institutions with extensive closed end fund holdings are being forced to liquidate them. I noticed that Wachovia (WB) is a big holder in many of the funds that have been getting hammered.

Typically, the sellers are in trouble because of something unrelated to what they sell. They can't sell the securities that got them in trouble (there is no market), so they sell whatever they can. This is a variation of Gresham’s Law (bad money drives out good money).

But the effects of these forced sales are usually temporary and I expect a sharp snapback rally shortly. There are many tremendous buys now. I would look to buy issues where the discount has widened dramatically, there are large distributions, and where there are catalysts to narrow the discount.

For example, yesterday I picked up some (AOD). It traditionally has sold for a premium, but closed yesterday at a 24% discount to NAV. AOD pays large distributions (27 per cent a year)which allow you to recover this discount. The fund is run by Alpine who also runs open end funds. There is a chance they could roll AOD into an open end fund like ADVDX.

Comments

[Alok Swain]

Hi George,
What are the others.
Thanks
Alok

[cma cma]

George, can you mention some of the other good CEF prospects? Forget about the RMR funds!

[dananoah]

I would assume most people would be staying away from closed end funds. Especially those at discount to NAV. Usually big discounts to NAV mean big troubles. Closed end funds can be complicated to figure out and pinpoint the problems causing the depressed NAV.

[searcher]

COE's can be evaluated just as any potential investment. Those that 'looked good' before their current discount and which have no exposure to the underlying causes of the liquidity problems of the selllers are excellent candidates for expedited close review and purchase.

[d_teller]

Mr. Swain, the other is AGD, which also has been beaten down, but has recovered a small (ca. 15% ) from its Wednesday lows.

[stockmarketadvantage]

At mid-week closed ends (CE) were trading at discounts I had never seen before in my life. I bought 15 different CEs on Wednesday (9/17) and Thursday (9/18). On Friday (9/19) at the market's close my average gain was 13%. It was like finding a pile of money on the sidewalk waiting to be picked up.

[pablosplace13]

EXG, AOD, BGY, BFD, DPO, JGG, JGT, VTA...just to name a few.

[Lewis8739]

What about the CUBA CEF?