OJO Zafado

Three CEFs Offering Assets on the Cheap

I strongly disagree with Neil's valuation argument. I have done best in the CEFs that sold at a decent or even compelling discounts. GLQ,WIA, and CEE have all been winners. The IFN is really getting beaten down and seems like a nice play on the BRICs, eventually resuming the lead in growth in the world economy. The other key is as the author alluded to is the amount of leverage these funds typically carry in terms of short term auction rate preferred securities. This has been a disaster for so many of the CEFs. The AOD comes to mind as a fund that does value/dividend investing with out the leverage. The author seems to have found the funds that have limited exposure to the worst performing sectors in the market. The beaten down valuations and discounts to NAV may be because they have sold such investments and moved on. We are left with the beaten down asset now devoid of the usual suspects that may have brought the CEF to these valuation levels. One mans trash sometimes becomes another's treasure. Neil's observation about CEFs converting to ETFs is a good one. If you can't beat 'em join 'em is the philosophy sometimes. Especially if a CEF is in a suddenly "hot" sector converting to an ETF may actually increase management's net fees by virtue of dramatic fund inflows.