Kenneth Fincher

CEFs that Could Raise Dividends

I think the point of the article is that funds who have cut or eliminated their distribution may reinstate given they now have offset their loss carryforwards and once again have gains. This could lead to a rally in the share price which in turn may help the fund to narrow the discount at which it now trades.

I don't see the screen you allude to near the end fo your article.

CEF Weekly Review: Expect Increased Volatility

How come you don't use the First Trust CEF Indexes in your analysis? Here is a link:

www.ftportfolios.com/r...

Municipal Bond Fund ‘Swan Dive’

This is the nature of the beast in the closed end fund space. Use these sell-offs to re-evaluate your closed-end fund posiitons, keep your powder dry as there is more of this to come in 4Q.

Low Share Price CEFs Have Significant Advantage in a Market Recovery

What is the average bid/ask spread between the top and bottom quartile? Curiosu to see if this would somehow eliminate much of that outperformance.

FOF: A Good Proxy for Owning the CEF Industry

Here is the link to the GCE Index;

www.claymore.com/indic...

FOF: A Good Proxy for Owning the CEF Industry

First I think it is important to keep this on topic and avoid the personal jabs. Make fund of the pseudonym I choose, I can accept that but please stop there.

Oldman said in his comment "closed end funds are bad investments." Now I don't completely agree with that but do know there is a shred a truth to the statement because too often we try to oversimplify the process of investing in closed-end funds for retail. Investing in closed-end fund requires painstaking investigation into the sponsor, fund objective, process, etc. There is not a magic pill, but if you choose to do the work it can be very profitable. I have done the work on FOF and will it is the first of its kind it is severly flawed in its appraoch to the closed-end fund space. And that was the genesis of my comments yesterday. But I will respond in order to set the record straight.

My response is based on the fact that you purport FOF to be a proxy for the closed-end fund market, I respectfully disagree. I went back and looked at the correlation you described and added the correlation to the only publicly disseminated closed-end fund index. So here we go.

The correlation you purport, if I understand, is a month end correlation as opposed to a historic daily one for the two products. Please let me know if I have misread this in your initial note. While I agree this is a very high correlation I'm not sure it stands the test of time. Further when i went to Bloomberg and looked at the FOF correlation since inception to PSQ I received a much different R^2. According to Bloomberg this number using monthly data is .358, weekly .39, and daily .361. Please let me know if I am missing something. When I looked at the corrlation to the NMUNI (NAV) and NMUNP (share price), which is the Nuveen Municipal CEF index the correlations were again very low, .354 and .35 respectively but the correlation to GCE was at .788 again using monthly data. So what does this tell me.

First I believe the tagline "FOF A Good Proxy for Owning the CEF Industry" to be inaccurate. As the correlations tell me, using publicly available CEF indexes GCE (again GCE is an ETN based off a index which is more weighted toward the taxable CEF space) and NMUNP, FOF is not a good proxy for the overall CEF market. While it is better for the taxable funds (including Equity and taxable fixed income) it is not for the municipal space. And you need to get this granular when looking at the space because a CEF is a structure and not a strategy. Joe, your index may tell a different story but I don't have the data you used to comment.

And while I agree with your correlation and causation statement, I don't agree that investors purchase FOF because it approximates the CEF market, rather I believe they purchase it for the same reason they purchase most other CEFs, the yield.

In the end I think investors have to look deeper than an FOF if they are going to make sound investments in the CEF space so we, you and I, need to refrain from making statements that one fund is a good proxy for an entire universe of funds because it may have an unintended impact on the investing public. Let's not oversimplify investing in this space.


On Feb 19 06:47 PM Joe Eqcome wrote:

> CEFGuru
>
> Let’s deconstruction your comments for purpose of analyses:
>
> Comment: “I would be interested in understanding this "unweighted
> CEF price index" a little better.”
>
> Response: The index is composed of the top 10 CEFs by NAV in each
> of the WSJ’s 13 CEF classification. The goal was to capture those
> CEFs that were most widely owned and to evenly weigh the classifications.
>
>
> Comment: “A quick look at FOF holdings tells me I can't use it as
> a proxy for the CEF market because it excludes the largest sector
> of the market, municipals.”
>
> Response: The fact that the 13 CEF categories were proportionally
> represented would mean that municipals were not overweighed in the
> index.
>
> Comment: “Check out the FOF website. In addition, how many of its
> holdings are actually earning their distribution as opposed to trading
> principal for income? A look at the tax center for FOF shows that
> nearly half of every distribution (48%) for this fund was a return
> of capital in 2008. Further, most of the remainder is in the form
> of short-term capital gains.”
>
> Response: I’m not sure this comment is germane. My article doesn’t
> profess that FOF’s holdings are similar to the industry’s holdings.
> What it professes is there is a price correlation between FOF’s share
> price and the unweighted index which is proportionate over 13 WSJ
> categories; and, I can quantitatively support that conclusion. <br/>
>
> As any investor knows there is no causation in correlation. It appears
> that investors’ rightly or wrongly purchase FOF because they believe
> it approximates the market as the index represents. (There is a positive
> correlation between diaper rash and road construction in the UK;
> both caused by summer.)
>
> Comment: “In the end I would conclude based on these facts and others
> that FOF is not a good proxy for the CEF market.”
>
> Response: Let’s review your facts. Based upon your observation that
> the portfolio of FOF does not approximate the composition of the
> CEF industry—as you define it (how have you defined it?), FOF’s share
> price does not have a strong relationship with the general price
> movement of the CEF market segment.
>
> It seems to me your conclusion is akin to describing an elephant
> my touching its tail.
>
> I would warmly welcome any quantitative proof to support your conclusion.
> I would assume that in your vaulted status as a “CEFGuru” you’d be
> able to get your hands on the data to disprove my simple contention:
> that FOF shares track move in close harmony with the CEF industry.
>
>
> I await your submission.
>
> Happy trails.
>
> Joe Eqcome
>

FOF: A Good Proxy for Owning the CEF Industry

I would be interested in understanding this "unweighted CEF price index" a little better.

A quick look at FOF holdings tells me I can't use it as a proxy for the CEF market because it excludes the largest sector of the market, municipals. Check out the FOF website. In additon, how many of its holdings are actually earning their distribution as opposed to trading principal for income? A look at the tax center for FOF shows that nearly half of every distribution (48%) for this fund was a return of capital in 2008. Further, most of the remainder is in the form of short-term capital gains. Why? Because this fund overweights equity based CEFs which promise distributions based on their ability to generate gains, which as we know was difficult in 2008.

In the end I would conclude based on these facts and others that FOF is not a good proxy for the CEF market.