Joe Eqcome's  Instablog

The 13 closed end fund (CEF) types on average were up 0.2% for the week ending 9/4/09. The S&P 500, as measured by the SPDR S&P 500 ETF (SPY), registered a decline of 1.3%. On an aggregate, unweighted basis, the weekly price increase for 630 CEFs was up 0.6%. The weighted 51 CEFs comprising the Claymore CEF Index registered an average decrease of 0.3% for the week.

The 630 CEFs’ aggregate, unweighted current distribution yield is 7.4% and is trading at a 4.5% discount (7.4% versus 4.6% the previous week, respectively). Year-to-date, CEFs on average have extended their price appreciation to 40.6%.  (Click Here for YTD CEF Performance--smaller sampe size.)

The Eqcome CEF Fear Index eased for the week with 0.5% increase. The unweighted average price change was up 0.6% versus 0.1% for the related NAV. The CBOE Volatility Index (VIX), which typically moves inversely with the stock market, was up 2.0% as the S&P 500 (SPY) logged in a decline of 1.3%. Mid-week the VIX was lifted to 13.8% above its 10 day simple moving average which some interpret as a short-term positive indicator as a “mean gravitation” effect pulls the index down and in theory stocks up.

CEF Weekly Fund Type Performance: Both NatMuniBndFnds and SingleStMuniFnds demonstrated strong price performance for third consecutive week, up 2.4% and 1.9%, respectively. Munis were followed by other CEF debt-oriented fund types as equity markets’ tumbled earlier in the week.

The abandonment of equities was demonstrated in the fund type laggards, both GenEqFnds and SpecEqFnds, down 0.7% and 2.6%, respectively. SpecEqFnds were hit with the double whammy of its real estate and energy components. The 14 energy CEFs were off 4.5%, while the 25 real estate CEFs were off 3.5%. PrefStkFnds also lagged as a result of another 5 banks failing—bring the total year-to-date to 89.

Price/NAV Weekly Spreads: In general the price/NAV spreads (PrcNAVSprd) moved in the general direction of the price movement, i.e. price changes exceeded related NAV price changes and visa versa. The only minor exception was for WrldIncFnds where price advanced but the NAVs increased modestly more than the price change.

CEFs Highs and Lows: The biggest CEF mover both in terms of price and PrcNAVSprd was Nuveen Massachusetts Dividend Advantage Municipal Fund (NMB). NMB price appreciated 14.1% and it had a positive PrcNAVSprd of 12.8%. (A positive spread between the change in price and NAV could be viewed unfavorably subject to other metrics. This is because the stock has advanced greater than its underlying NAV. All things equal, they should move in tandem. The opposite would also be true.)

NMB is a thinly traded stock; some days it only trades a couple of hundred shares. In after-market trading on Friday it was down $.56 per share to $14.90.

One of the laggards in term of PrcNAVSprd was strangely a muni fund. Eaton Vance Muni Income Trust (CEV) generated a negative spread of 7.2% and its price was off 4.2%. CEV is generating a monthly annualized yield of 7.3% and is trading at a discount of 3.2%. It recently increased its monthly dividend in August 11.5% to $.07217. It announced a similar amount for its September distribution. The stock goes ex-dividend on September the 7^th; it will be trading ex-dividend when it opens on Tuesday the 8^th.  

Market News: This week was bifurcated by an early equities plunge followed by a relief rally after a “glass half full” reading of the unemployment numbers and more “happy talk” from Chinese bureaucrats regarding the Chinese stock market.

The talk regarding September being the worst month for stocks may likely be a ruse this year. The Dow Jones Transportation Index continues to remain strong which is supporting the upward bias of the DJIA.

Consumers will again be in focus during this holiday-shortened trading next week. Retail sales, the Beige Book and Consumer Sentiment will all have reports issued next week. (Click Here for Next Week’s Economic Calendar.) This week’s retail sentiment is one of less bad.

ETFs: Fixed income (Blue) was mixed. The positive performance of the muni ETF confirms the positive muni CEF fund type performance.

With the exception of gold, commodity prices took a hit. Not only was gold price up 3.9% but the volume of the GLD was over twice last weeks average and the highest since early June.

Gold price backed off the 1,000 per ounce milestone. The combination of inflationary fears and the fact that gold typically picks up in September as the holidays increase the seasonal pick up in demand for jewelry—particularly during the height of India’s wedding season. Some expect a technical pullback before another assault on 1,000.

Real estate continues to be disassociated with the fundamental; it appears more driven by the direction of the stock market. Investors seem to have given up on oil, indicating it’s time to take a serious look at some of the names. (Click Here for ETF YTD sector performance.)           

CEF Insider Trading: There was little insider trading reported during the first 4 trading days of September. Dan Neidich, a director of General American Investors Company (GAM), continues to slowly add to his position initiately established in July of this year. In early September he added another 1,000 shares at an average price of $21.87, bringing his total holdings to 16,300 shares.

Mr. Neidich has been a director since 2007. Yet it is only this year he made a direct investment in the CEF. Neidich, a former Goldman partner, who was co-founder of Goldman Sachs’ initially successful Whitehall private real estate-equity franchise, should be flagged. Additional buying by insiders would be a nice confirmation of improving expectations for GAM.

Allyn C. Woodward, Jr., an independent director of Hercules Technology Growth Capital, Inc (HTGC), a CEF that has elected to be taxed as a business development company (BDC), added 4,300 shares to his holdings now totaling 79,446 shares. Mr. Woodward was former Vice Chairman of Adams Harkness Financial Group, which was sold to Canaccord, Inc. in 2006. There hasn’t been insider buying in HTGC since March of this year. (Click Here for Insider Summary.) 

CEF Focus for the Week: It seems it's time to revisit some of the energy names. This is a group everyone has abandoned. If we’re closer to an economic recovery, as the stock market may be tentatively indicating, we will need more energy. Another strategy in an uncertain market is large-cap, dividend paying stocks. They tend to follow the sharp rise in small cap stocks.

Adams Express Company (ADX) appears a happy compromise. ADX’s largest holding is Petroleum & Resource (PEO), a sister CEF that holds energy related companies and is itself selling at an 11.8% discount. Other ADX holdings include brand name large cap stocks. ADX pays a 2.1% yield, trades at a 15.4% discount and its expense ratio is a modest 0.48%. Not a bad port in a climate that is modestly constructive.

Joe Eqcome (Disclosures: Long SPY, GAM and ADX)