Joe Eqcome

CEF Weekly Review: All Fund Types Positive

VLD

I ask myself the same question. The story seems compelling enough: insider buying, selling at a significant historical discount, buying BRK.A at a discount, etc.

One issue maybe is the fact no one is comfortable with management. I'm hoping that the reinstatement of the dividend would bring another group of buyers to the stock that have avoided it due to its lack of dividend.

Maybe someone can add additional perspective to matter.

Joe Eqcome

Muni Funds: CEFs vs. ETFs in 2009

Scott F., let’s parse your comments:

“ETFs cannot use leverage…” ETFs can employ leverage in multiple fashions: 1) there is a significant segment of ETF population that employs leverage; they are known as “Ultras”, “Doubles”, “2x” and the like. The fact they may employ options or derivative strategies to create leverage doesn’t negate their intent. Secondly, ETFs can employ leverage with debt. SPDR Lehman Muni (TFI), an ETF, in its prospectus, if you care to read it, states, that the fund can lend its securities to other financial intermediaries. I quote, “These loans cannot exceed 33 1/3% of each Fund’s total assets.” So, ETFs can make loans and buy additional securities with the proceeds. (However, if you still feel strongly about your position, you should contact Thomson Reuters’ data services and inform them they are in error with regards to its classification of TFI as a “leveraged” ETF. I’m sure they’ll take your suggestion under advisement.)

“Picking CEF munis purely on current discount is a risky game.” This is particularly true if you’re not an astute investor. Most investors understand risk is typically priced into a securities valuation. In times of panic, the prices of securities exceed that of the implied risk, i.e., stock price is lower than intrinsic value. My effort in pointing out such CEFs is based on the historical inverse relationship between a CEF’s relative discount and it subsequent price appreciation. It is noted for the purpose of further exploration by investors and not as recommendations. As always, investors should understand their risk tolerance and never invest with scared money.

“Far better to find historically wide discounts in lower cost CEF munis with low call ratios and decent ratings…” I, and I believe many others, would welcome your detailed analysis with supporting data regarding your contention. Particularly, we’d like to see you compare your strategy with the one of picking deep discount CEFs.

“Proof by assertion” only works for college professors. It’s of little value in the world of investing.

Happy trails!
Joe Eqcome



On Jan 20 12:44 PM Scott F wrote:

> ETFs cannot use leverage in the manner of CEFs, so all muni ETFs
> are unleveraged. Picking CEF munis purely on current discount is
> a risky game. Many are at deep discounts for good reason: junky portfolios,
> bad management, excessive fees. Far better to find historically wide
> discounts in lower cost CEF munis with low call ratios and decent
> ratings. That all being said, credit ratings are near worthless and
> so are the rating companies. Proceed cautiously.