Elliott

Two New ETFs: Emerging Market Bonds, Buy/Write

When I buy a closed end fund at discount I don't buy with the assumption that I will profit from the fund somehow returning to par value. Instead, I look at the discount as a safety cushion: if the discount gets much more than 10 or 15 percent bargain hunters and value investors tend to provide support.

In 2006, 19 cents out of the $2.00 paid to BEP shareholders was return of capital, according to BEP's prospectus.

To check the health of a CEF I believe you want to watch the NAV, not the price. I steer clear of CEF's that bleed asset value. For 2007, BEP's NAV when adjusted for the distributions appears to be matching the S&P500. The index is up 4.8%, while BEP's NAV is up 5.7% once the $2 payouts are included. If 19 cents return-of-capital is assumed, BEP's NAV is up 4.6%. BEP's fund managers seem to be doing a good job of collecting index option income while maintaining NAV relative to the S&P 500 index.

BEP's price performance has been poor as it swung from premium to discount. Even with the distributions BEP is down -7.2% for the year. That illustrates why I never buy CEF's at par or at a premium. But, again, based on BEP's managers handling of the fund's NAV I think BEP is a good buy at a discount.

Two New ETFs: Emerging Market Bonds, Buy/Write

I'm not sure the buy-write ETF will be a good deal when you can buy BEP, IQ IA's closed end fund, for a 7% discount to NAV. Why buy the same assets at par (the ETF) when you can have them on sale (the CEF). No doubt the ETF will have a lower management fee but the discount on the CEF is much higher.

BEP has been paying out $2/sh per year in distributions for three years running and is yielding 13% at the current price.