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  • A Quick Overview Of UBS ETRACS 2X Leveraged ETNs [View article]
    "this is the cheapest leverage they can get" - except with index futures you can get far cheaper leverage and zero management fee. Thus anybody who has an allocation to the S&P500 in their portfolio is better off with futures and low-expense, non-leveraged products.
    Mar 21, 2015. 01:33 PM | 3 Likes Like |Link to Comment
  • Municipal Bonds Closed End Funds - How To Find The Best Values [View article]
    The article appears to imply (just like many others in this forum) that municipal bond CEFs will have returns in the high single digits ("Their tax equivalent yield is high reaching over 10%"). I personally think this is misleading. The current distribution yields have absolutely nothing to do (that I can see) with expected returns. Distribution yields may - and I assume almost certainly will - include significant capital gains resulting from the past drop in interest rates. If I'm not mistaken, current municipal bond yields to maturity are in the 2.x percent range for investment grade bonds. Even with leverage and assuming that long-term interest rates stay low, I have a hard time seeing how returns could be anywhere close to the current distribution yields of 6.x% that some funds currently "yield". I think a more meaningful number would be the weighted average SEC yield of the bonds in a fund. Unfortunately though I can't find these numbers published for most CEFs. I'm not an expert on municipal CEF distribution policies or accounting, so please correct me if I'm wrong.
    Example: Vanguard Long-Term Tax-Exempt Fund (VWLTX) has currently an average portfolio coupon of 4.6%, and a portfolio yield to maturity of 2.4%, and a SEC yield of 2.13%. And that is for long-term municipal bonds, mostly AA not even AAA; the numbers are certainly lower for shorter durations. I would be curious if somebody can explain me which magic CEFs use to turn those 2.x% numbers into 6.x% returns. I think they won't; not even close. I think looking at distribution yields is arguably completely useless, and at best highly misleading.
    On another note, the effect on yields or returns from realized "discounts to NAV" (via distributions at NAV) is more than eaten up by the expense ratios, for almost all CEFs that I checked.
    Mar 5, 2015. 07:59 PM | 1 Like Like |Link to Comment
  • Arbitraging 20% As An Exuberant Closed End Fund Returns To Normalcy [View article]
    What makes you believe that the full correction to the average discount occurs within a year? Markets often stay irrational longer than you can stay liquid, especially CEFs. Many CEFs had huge premiums for years just because they returned investors' own capital, completely irrational. Betting on other investors' common sense while being short with a 24% borrow rate plus margin cost seems like a risky game to me.
    Jan 20, 2015. 03:53 AM | Likes Like |Link to Comment
  • Pargesa: Buy Premium Assets At Multiple Discounts [View article]
    An important question: What is the "money leakage" (holding company overhead / carrying cost) at GBL? What is the money leakage at Pargesa? Only with that information can we decide if the discount represents tangible value, or which of the two companies is the better option.
    Jan 7, 2015. 01:19 AM | Likes Like |Link to Comment
  • 10.6% Yielding ETW Offers Both Income And A Capital Appreciation Opportunity [View article]
    How can that make somebody feel good??? The fund annihilates ca. 2% of invested capital annually in fees alone. 2% of whatever is invested in stocks or cash, regardless of investment performance. Have you calculated the present value of this annihilation? Coincidentally, the current discount is among the smallest in its history. I don't see how anybody can believe the discount may further narrow, and even if it does, compensate for the carrying cost of annihilation between now and then.
    Jan 5, 2015. 08:56 PM | 1 Like Like |Link to Comment
  • 10.6% Yielding ETW Offers Both Income And A Capital Appreciation Opportunity [View article]
    Two questions:
    - Do distribution yields of CEFs have any meaning in terms of risk or return of the underlying portfolio? CEF distributions are just arbitrary numbers, and can come from dividend earnings, past or current capital gains, or from nothing at all, right? Why would any reasonable person even bother looking at distribution yield numbers?
    - Is there any evidence of a buy-write strategy outperforming an index investment on a risk-adjusted basis (CAPM)? If yes, can you cite a reference? thanks!
    Jan 2, 2015. 06:09 PM | 1 Like Like |Link to Comment
  • The Importance Of Return On Capital [View article]
    There is another so called "quality" factor in most common 4-factor and related models, which is probably related to profit margins and ultimately ROC. In that case you would have just re-discovered or re-phrased those "smart beta" or factor models. You would need to back-test at least against these known models, rather than the market, to demonstrate any potential value in overweighting high-ROC companies. Whether those models are still applicable despite their decade- to century-long successful backtesting, or whether they may have been arbitraged away by now and/or their explanatory root causes become irrelevant, is subject to intense discussion in the investment community. I personally have little hope that any such strategy that relies on simple backtesting and could be easily arbitraged away will ever have any predictive value on future returns. You can backtest as much as you want, you never know if you just do curve fitting while doing that. There is no easy free money.
    Dec 12, 2014. 11:21 PM | Likes Like |Link to Comment
  • The Importance Of Return On Capital [View article]
    Nice and insightful article. However, what practical conclusions exactly can we draw (if any)? ROC is not among one of the few "smart beta" strategies (mostly small, value, momentum) that have proven to be consistent over a relatively long time. Is there any rigorous study that has shown that e.g. a strategy overweighing high ROC companies outperforms a passive market strategy? If not, could it be that the ROC is typically already priced into the valuations, and/or past ROC is not a good predictor of future ROC of a company? I think it is well worth researching answers to these questions, before spending time and delving into the task of identifying high ROC companies in an attempt to create excess investment returns.
    Dec 12, 2014. 08:18 PM | Likes Like |Link to Comment
  • Kinder Morgan: What Worries Me The Most [View article]
    Thanks for the infos, KMR Holder and Be Here Now; but my question was concerning the scenario with more than one original KMR purchase. My broker (IB) told me beforehand that the highest cost basis method (the default method on my account) would be applied to net the long and short positions; but it did not happen and I have yet to figure out what happened as their accounting is hard to understand. I was hoping somebody else had more than one original tax lot, to compare results.
    Dec 5, 2014. 08:45 PM | Likes Like |Link to Comment
  • Kinder Morgan: What Worries Me The Most [View article]
    KMR Holder: Are the individual tax lots of the previous KMR shares transfered individually to the converted KMI shares (if there is more than one tax lot), or do all converted KMI shares in an account have the average tax basis of the previous KMR shares?
    Dec 3, 2014. 05:07 PM | Likes Like |Link to Comment
  • Kinder Morgan investors approve merger [View news story]
    I asked my broker the same question, who responded in pertinent parts:
    "... I am only assuming that this potential corporate action will create one merged company. If this is the case, the aforementioned 'netting' of your short and long positions would occur and there would not be any tax lots to match off... The tax optimizer would not need to be utilized, as the net effect would then be reflected on your account statements as one position."
    It appears to imply that the profits from the merger arbitrage are tax free. I have a hard time believing that. Can someone on this site confirm or refute this?
    Nov 21, 2014. 09:09 PM | Likes Like |Link to Comment
  • Kinder Morgan investors approve merger [View news story]
    KMR holder,

    thanks for your input. However, aside from the fact that I don't engage in market timing or prediction, as I prefer to make risk-free money, I'm not sure what the chart of KMI after 11/26 has to do with the merger arbitrage, as we established earlier that positions will be netted in the brokerage account, which in my understanding means that none of the positions that created the arbitrage will be left on or after 11/28. Please correct me if I misunderstood. Thanks.
    Nov 21, 2014. 08:53 PM | Likes Like |Link to Comment
  • Kinder Morgan investors approve merger [View news story]
    Probably about 1.5% or so arbitrage for me. I hope I benefited from the stock dividend - will check. Also have to check what short interest I paid on the KMI short position. I probably received the last KMR and paid the last KMI dividend, that should work automatically, right? Does anybody know why today after the vote there is still an arbitrage differential between KMR and KMI? I would like to make more free money, but I maxed out all my margin accounts.
    Nov 21, 2014. 01:42 PM | Likes Like |Link to Comment
  • Kinder Morgan investors approve merger [View news story]
    If I bought 2500 shares of KMR and sold short 6000 shares of KMI before the merger vote, will my positive and negative KMI positions be automatically "netted" after the merger? If yes, when exactly will that happen? Also, how will tax lots be matched?
    Nov 20, 2014. 10:29 PM | 1 Like Like |Link to Comment
  • Brookfield Infrastructure: Take Advantage Of Current U.S. Dollar Strength To Buy This Forever Stock [View article]
    "Brookfield Infrastructure has a stated objective of increasing distributions by 5%-9% per year. The company expects to be able to grow distributions from its cash flows, without need for new capital. Of the 5%-9% yearly target distribution increases, Brookfield expects 3%-4% to come from tariff increases, 1%-2% from contracted GDP-linked revenue growth and 2%-3% from the reinvestment of cash flows" -
    Just about any other major company could legitimately make that "stated objective". What is the value of that "stated objective" and the "target distribution increases"? Hint: In finance, past performance is one of the worst predictors of future results. The published rationale for those numbers are basically adjustment for inflation, plus growth that may or may not materialize, like for any other company.
    I believe BIP is a good company, but one should not forget the ca. 25% (or 1.25% of assets) fee "drag" that may make it uncompetitive in the long run. BAM receives those fees, largely independent of market conditions.
    Oct 29, 2014. 06:31 PM | Likes Like |Link to Comment