Joe Eqcome

CEF Discounts Approaching 1999 Nadir

CEF was trading at a 6.3% premium at 12/31/99 and the following year (2000) the share price declined -23.6%.

Precious metals are typically a top/early bear stock market investment for investors looking to protect themselves from increasing stock market uncertainty. So, it might make sense that it would underperform in a market recovery. Other precious metal ETFs include IAU, GLD, SLV & DBS--all have short histories. CEF is currently trading at a 11% premium.

If you plot CEF against the S&P 500 you'd see an inverse relationship during the 1998-2002 periods. However, in 2008 the stocks seemed to trade in tandem as the market tanked. This still might be a good "short" possibility if the historic relationship between the two reasserts itself (long SPY; short CEF). Talk to your financial advisor before making such a trade.

Below is a URL to CEF at ETFConnect.com that has an abundance of data on CEF. www.etfconnect.com/sel...

CEF Discounts Approaching 1999 Nadir

There are many reasons why a CEF's current NAV might be below its original offering price. You're right in that one of the reasons may be it is paying a dividend in excess of its income.

However, depending on the CEF fund type, the more likely reason for a decline in NAV from its offering price may be the value of its portfolio has declined--due to market forces or events specific to its stock holdings. The investment rationale for buying the stock is that the CEF’s portfolio holdings may recover thereby driving up the stock of the CEF above my purchase price.

This may be somewhat similar to a builder who built a house costing $1 million. Due to declining housing values, I could buy it from him for $800,000. Why should I care that it cost him $1 million to build as long as I felt it was a value for me at that price?

It similar to an investor who purchased a CEF stock at the original offering price, I don't particularly care what he purchased it for as long as I think it’s a good value for me at the price I pay at that point in time.

CEF Discounts Approaching 1999 Nadir

Your figures for HQH are correct for the date for which you sighted them--which makes the case for HQH that day even more compelling then presented. Thanks for the catch.

CEF Discounts Approaching 1999 Nadir

The average total return for the study group for which I had data available was 25.9%.