Joe Eqcome

CEF Mergers Drives Special Equity Funds

GlobalTrekker

To piggyback on HighTower's suggestion, I am also including a link to the "Journal of Political Economy". The jounal was founded in 1892 and published by the University of Chicago. It is considered by some the most prestigious journals in economic theory and practice.

www.journals.uchicago....

You may find this useful.

Joe Eqcome



















































Joe Eqcome


On Jul 19 12:32 PM GlobalTrekker wrote:

> Decent compendium of CEF activity, some more relevant than others,
> but let's keep this a financial web focus and keep your personal
> politics out of it.

CEF Mergers Drives Special Equity Funds

GlobalTrekker

A little history lesson for you. When economics was original taught at Oxford the course was entitled “Political Economics”. The reason was economics was, and still is, considered a social science. Political policies are designed to influence economic and investment behavior. So, it is almost impossible to separate politics from economic policy and sound investments decision making.

Since America is still a country that recognizes free speech and debate, rather than not injecting my economic and political views—which I believe is crucial to sound investing, why don’t you countermand my arguments with your views if you disagree?

I, and I’m sure others, would like to hear someone defend an out-of-control fiscal policy and what would be the best places to invest if such were to become an economic reality.

Joe Eqcome



On Jul 19 12:32 PM GlobalTrekker wrote:

> Decent compendium of CEF activity, some more relevant than others,
> but let's keep this a financial web focus and keep your personal
> politics out of it.

Spread Between Best and Worst Performing CEFs Narrows

Egg

At the beginning of each article I spell out "closed end fund (CEF)" so to identify the "CEF" for the purpose of the article is to be denoted as closed end fund(s). This has been the typical convention for abbreviations in legal documents and investment reports.

If you have a better solution to distinguish the two, I'd be happy to entertain your suggestion.

Joe Eqcome

Last Week's CEF Seesaw

Jeandit

So, you're not familar with shorting stocks?
Good luck with your investments!

Joe Eqcome

CEFs: Discount at Historical Average

Oldman

With the possible exception of certain muni bond funds, I’m underweighted on the fixed income side—particularly long government/agency bonds. I’m concerned we’re going to see more inflation at some future point in time as global governments print money to float us out of the toxic assets problem. This would put downward pressure on the asset values.

If you have a slightly positive bias towards the market, you may want to consider “buy-write” CEFs. These CEFs buy a diversified portfolio of stocks and write call option against its portfolio. Such CEFs can generate premium income by writing (sell) the option and if a particular stock gets called away because the share price rises to the option strike price, the CEF can book another gain. You don’t want to owns such funds if you think the market is going to decline as the share price decline can off-set the premium received by writing calls.

Options are a very specialized investment area which I’m not as familiar as I’d like to become, so caution is in order.

If you’re so inclined, you might want to consider Eaton Vance Tax-Managed Buy-Write Income Fund (ETB). It has over $300 million in assets, currently yielding 13.9% and is selling a discount of 5.8%.

Breaking down the 13.9% distribution yield: 2.2% is supported by investment income; if you add on net realized gains it boosts it to approximately 5.8%; the rest coming from return of capital. So, the distribution yield is priced accordingly.

I hope this is helpful.

Joe Eqcome



On Jun 08 10:00 AM oldman wrote:

> with weakness in employment, housing, retail etc is there any good
> reason funds that hold goveernment/agency bonds sold off? My thought
> is perhaps a strong stock market has temporarily changed the flow
> of funds and weakness in bonds will become stronger a gain. Where
> would you get your income from now?

CEFs: Discount at Historical Average

bsharvy

I maintain my own database of approximately 640 CEFs and download pricing data daily. So, the CEF discount is calculated on that basis.

I post the month end Prem/Disc on my website for the Eqcome Index along with its CEF sub-indices (see "CEFIndex", on the website. That Prem/Disc is different than the one I noted in the article as it included a comparison of data I had available for all CEFs in the data base; the Eqcome CEF Index is comprised of just 130 CEFs.

These number would be different that Claymore CEF index as it is constructed differently.

You're aware that Claymore updates its index daily? Its available on under indices/fund/clmref/hi...

I hope this is helpful

Joe Eqcome


On Jun 07 01:55 PM bsharvy wrote:

> Where are you getting the info that the average discount is 5.7%
> on the index. Claymore's site last updated the info on March 31.

CEFs Up for the Week; Insider Buying at Boulder Growth Surges

Anarchist

By definition closed end funds (CEFs) must distribute their net investment income and capital gains on an annual basis or its equivalent. The only way it can obviate this regulatory requirement is to pay taxes on the income and gains or offset gains with carry forward losses. While from time-to-time, the former, may make sense on a special situation basis, it would be in direct conflict of the purpose of a CEF which is a conduit by definition and would be subject to shareholder protest.

BIF does Berkshire Hathaway; it also owns other stocks that do pay dividends. In fact, 25% of its total portfolio it REITs that are conduits and pay dividends. Also, any realized gain in the appreciation of Berkshire’s stock held by BIF would be subject to distribution requirements.

I would submit that if BIF reinstated its dividend that was suspended last year, the stock would respond positively. One would presume that the insiders that currently own 20% of the fund recognize that fact. I thing it is reasonable to assume that dividend will be reinstated; just went would be subject to loss carry forwards and the not so transparent agenda of the insiders who own the management company that advising BIF.

Joe Eqcome



On Jun 02 09:23 PM anarchist wrote:

> My question above was covered in your May 17 article. If 30% of BIF
> is invested in Berkshire Hathaway then where does the dividend come
> from since neither BRK.A or BRK.B pays a dividend?
> Thanks

CEFs Up for the Week; Insider Buying at Boulder Growth Surges

Dan

Thank you for your comment.

I try to be somewhat disciplined with my CEF market segment reviews. I have a very limited mission that I try to restrict it to two pages. That mission is to: 1) provide a top-down overview of what’s going on in the CEF market sectors; 2) try to discern if there are any major trend developing for the time period selected; 3) compare it to other related performance metrics; 4) end with an investable idea.

So, my intent wasn’t to explore in-depth the relationship of the insider buyers at BIF, but to provide the underlying reasoning for the investment idea portion of the article. (That is not to say that there isn’t significant intrigue with regards to the interrelationships of the CEFs you noted above and the related managements and insiders. In fact, you have done a yeoman’s job of chronicling it.)

I find that it actually takes more time than one imagines for a investment idea like BIF to gain traction. I, like you, think this stock has “legs” and I’m willing to wait. There’s an old adage in real estate business, “buy at the perimeter and sell when they meet you.” I’m buying BIF and I will be selling it when everyone else figures I what we know; or, if I uncover a flaw in my logic.

A detail analysis of BIF’s insider issues is subject for a different article.

Joe Eqcome



On Jun 01 11:46 AM Dan Plettner wrote:

> Joe, was it your intent to adequately discuss the relevance of insider
> buying of BIF? Given the mention in your article's title and your
> historically thorough writing style, I was very surprised that you
> didn't really discuss the unique details pertinent to BIF market
> participants.
>
> How do you perceive the insider buying surge to relate to the 2nd
> Shareholder Vote Adjournment, Control Issues, and the 'Manipulation
> or Hallucination' story that you previously authored?
>
> Personally, with analysis of those topics, I could reasonably see
> BIF trading at a 15-20% premium some time next year, with the related
> funds (BTF, FF, DNY) then trading at a 30%-40% discount.
>
> Disclosure: Long BIF (added to pre-existing long position today)

CEFs Reverse Course: Risk Avoidance Tops the Week

bsharvy

As it relates to owning Berkshire through BIF--which represents 30% of the equity holdings, even if you valued the other 70% of its portfolio at par, you would have a 3.3 year breakeven at a 2% annual management fee before the current discount was consumed by the cumulative fee. (22% discount/((2% fee/30% Berkshire portfolio holdings)). Since Warren Buffett is a full professor in the investment business, I'd be willing to give him the courtesy of waiting at least 12 months prior to bailing.

Joe Eqcome


On May 18 12:50 PM bsharvy wrote:

> A CEF isn't legally required to make distributions; if it is willing
> to pay taxes, it can keep and reinvest the income.
>
> The problem with BIF and BTF is that the fees are high. You are paying
> over 2% a year for the ability to own Berkshire in small amounts.

CEFs Reverse Course: Risk Avoidance Tops the Week

bsharvy

Yes, you're technically correct, but I believe there is a limited number of circumstances where it would be justified. No one buys a conduit like a CEF so its management can retain earnings minus taxes to be reinvested. There are operating companies for that purpose which have greater flexibility of operation.

Joe Eqcome

On May 18 12:50 PM bsharvy wrote:

> A CEF isn't legally required to make distributions; if it is willing
> to pay taxes, it can keep and reinvest the income.
>
> The problem with BIF and BTF is that the fees are high. You are paying
> over 2% a year for the ability to own Berkshire in small amounts.

CEFs Reverse Course: Risk Avoidance Tops the Week

User 415504

There are several reasons why a CEF, which is legally required to distribute annually its earnings and realized capital gains, would not:

1. It has no earnings and profits (E&P);
2. It utilizes its loss carry forwards to off-set earnings and profits;
3. It is precluded from distribution due to a leverage ratio that exceeds regulatory requirements.

A rising stock market has several of the elements that would enable BIF to reinstate its distribution.

In the last 5 fiscal years, BIF has generated investment income. In FY ’08 it did recognized capital losses. BIF’s accumulated net losses are minimal, so any earnings would be likely to be subject to distribution. (While I’m not an accountant and recognize I’m on “thin ice” here, in theory, management could continue to absorb earnings by selectively recognizing losses and therefore postpone distributions.)

To the extent that distributions are a function of regulatory restrictions, rising stock markets and alternative financing of ARPS would mitigate that hurtle.

Lastly, there are those that suspect that the distribution reduction was a ruse to allow the insiders to accumulate their positions at vastly reduced share prices. And that management of BIF would reinstate the dividend to enhance the value of their shareholdings as well as generate incremental return on investment.

While I can not provide a smoking gun with regards to specific legal requirement for such distributions by calendar year end, I believe there’s enough circumstantial evidence for its reinstatement. Loosely translated, I’m speculating on a distribution reinstatement.

Joe Eqcome

CEF Week in Review: Riskier Fund Types Rule

Sskell

If BIF's management is as cynical as you believe—and I believe there may be evidence they are—wouldn’t those that invested now prior to the reinstatement of the dividend be a net beneficiary of that future policy?

My long term investment policy (12 months or more) criteria are: 1) Do I trust management? 2) Can management make me money? 3) Never reverse the order of "1" and "2".

For short-term trade of 6 to 9 months—as I see this opportunity, I’ll occasionally make an exception to that policy if the story's compelling. The fact I’ll need to take a soapy, hot shower post investment notwithstanding

Anyhow, it will be interesting to see how this plays out.

Joe Eqcome


On May 10 09:58 PM sskell wrote:

> Isn't this pretty straightforward: they knew that if they eliminated
> the distribution the share price would collapse, allowing them to
> buy it a lot cheaper. They can reinstate the distribution anytime;
> if I were as cyncial as these guys seem, I'd even raise it from its
> previous level to suck in all the retail investors that love a big
> distribution yield regardless of its source or sustainability.

CEF Week in Review: Riskier Fund Types Rule

Alan Young

My mention of the best and worst performer in the weekly commentary is only designed as a data point and I hope they're not being taken as recommendations. It is designed to see what's moving and to facilitate further inquiry and hopefully drawn some conclusions.

You're correct in the fact that there are probably better plays on commodities and the recovery of those commodity driven economies such as Russia than Templeton Russia & Eastern Europe Fund (TRF). Other CEF alternatives that touch on Russia are: Central Europe and Russia Fund (CEE) and Morgan Stanley Eastern Europe Fund (RNE) both trading at discounts.

Thanks for you kind word on BIF.

Joe Eqcome


On May 10 04:33 PM Alan Young wrote:

> Joe, your analysis of BIF is superb. More comprehensive detail and
> less axe-grinding than I've seen in similar articles. Well done.
>
>
> About TRF: The bullish commodity market explains why Russia-oriented
> funds would go up, but not why they would trade at a 59% premium!
> There are easier ways to own Russia. This warrants further investigation.

CEF Week in Review: Riskier Fund Types Rule

Oldman

Since the CEF market segment is so diverse, I believe that by looking at the trends in the sub-sector an investor can get a better understanding of the larger investment picture.

Based upon the mosaic theory of investing, by touching all parts of the elephant you can get a better understanding of its size and composition. This CEF sub-sector trend analysis is just one of those component parts.

Additionally, I try to mix up the weekly commentary by sometimes looking at the weekly and other times reviewing the month or YTD.

This maybe useful to some and to others it may be of little value. Ultimately, the marketplace will decide.

Joe Eqcome




On May 10 11:25 AM oldman wrote:

> you are making the mistake of an inexperience investor by using short
> term and rear view mirror performance. I'm surprised someone with
> your experience would make this comparison.

Average CEF Declined 10% in February

ETFDeskdotcom

I must confess that I’m not well versed in the mechanics of covered call funds. I have enough knowledge to be dangerous. Therefore, I wouldn’t want to hazard an opinion without having studied the issue in greater detail.

However, what I do know regarding covered call funds is empirical. Covered call funds are selling at a slightly greater discount (13.3%) year-to-date (YTD) versus 12.6% for the CEF market segment. Such funds on average are off significantly (21.3%) YTD versus 3.6% decline for all CEFs. The average distribution yield is 22.9% versus 13.6% for the CEF market segment—likely a reflection of the volatility of their distributions.

Thanks for your inquiry. I’ll spend some more time getting up to speed in this area.

Joe Eqcome



On Mar 03 11:15 AM ETFDesk dot com wrote:

> Joe, good post. just curious, are you weary of the covered call funds
> in this environment, where despite being cheap, their calls limit
> NAV upside? Specifically names like JSN that cover large portion
> of its portfolio...
>
> PS. ETFDesk.com will be getting Closed-end fund data soon.