Sapphire

Exploiting CEF Market Sector Inefficiency with FOF

Joe - thanks for your reply. I do like the funds and their allocation in FOF; in fact, I sometimes look at the individual holdings in FOF and compare them to mine to evaluate my own choices. My impression, after researching many closed end funds myself, is that FOF's manager is a good one who knows his stuff.

I have really enjoyed learning more about closed end funds and choosing my own, as I find it a very interesting asset class. But for those who don't have the time or inclination to do this, I think FOF is a good vehicle with less downside risk than many individual closed-end funds out there. It will be interesting to see how it performs long-term.

Thanks for the article -

Sapphire

On Jul 26 08:45 PM Joe Eqcome wrote:

> Sapphire
>
> I applaud the fact that you did your own research and pick out a
> portfolio with which you are comfortable. Kudos!
>
> To the extent that FOF is trading at a 3.7% discount and FOF’s management
> fee is around 1%, you’d have approximately a four year payback period.
> So, if you wanted to own the shares for less than 4 years it might
> be appropriate.
>
> The other issue is the cost of trading. When you buy FOF, depending
> on the amount, you will usually pay a single commission fee. For
> most on-line brokers is less than $10. If you buy 20 individual stocks
> you’ll be paying the equivalent of $200 for the portfolio. So, this
> is a cost to be considered.
>
> For someone like yourself, doing the research and picking your own
> stocks is great way to learn about the CEFs and empowers you to learn
> more.
>
> I hope this is helpful.
>
> Joe Eqcome

Exploiting CEF Market Sector Inefficiency with FOF

Hi Joe,

I looked at FOF, but opted instead to diversify into about 20 closed-end funds that I chose myself. I notice that the funds I picked are also within FOF's portfolio. However, I think I got them at better discounts and therefore a much better overall yield than FOF has been paying, particularly considering the heavily discounted prices many popular CEF's were selling at earlier this year. Others who do not wish to do this much research, monitoring, and juggling may find FOF a fairly safe alternative way to diversify into a number of CEF's, however.

One concern I had is since FOF charges a management fee, as do all the CEF's in its lineup, could not the discount - which is small at this point - be negated by a "fees on top of fees" issue?

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Great article. I am doing the same thing and have greatly upped my monthly income.

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Does anyone know what happens if a fund company decides to close (as in discontinue permanently) a closed-end fund which is trading at a discount? Would investors get back the market value of the individual stocks, or just the discounted NAV of the fund?

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I did some research on AOD a few months ago, called Alpine and talked to them, and came to the same favorable conclusions as the author. The management team is smart and is running the fund the way I'd manage my own portfolio if I had the time and talent. I also like that it does not include any return of capital in its monthly distribution.

I've been adding to it regularly, as I think it's a great value at with significant upside potential. This fund now trades at a discount but in the past has sometimes traded at a premium.

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I'd definitely be interested in some CEF recommendations which practice the strategy.

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One of my favorite articles, Mr. Kosnett - keep them coming! I have bought many of your suggestions and now believe I may someday be able to retire.

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Thank you, Stockerblog, for a very helpful and interesting article.

Regarding Ted's concern, the only way around the unstable dividend dilemma that I've ever found is to buy discounted bonds which hopefully won't default and holding them to maturity and/or until you realize some capital appreciation, which can be sporadic.

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Thanks for a very good article. I'd be interested in hearing about any updates to the above.

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Good article - I have owned a few closed-end funds for years which pay a decent dividend but are now highly discounted. As with many things, now seems to be a good time to buy, but God help you if you have to sell - which is why I"m holding onto mine.

The present discounts and dividends make many closed-end funds appear as though they are now they deal of a lifetime - and maybe some of them are. But one thing which confused me, until I found cefa.com on which to research them, was that many closed-end funds include a return of capital in their dividend, making the dividend appear much higher than it actually is.

With the high dividends and present discounts to NAV, I'm tempted to buy more closed-end funds in case those huge discounts narrow someday. But I'd like to know from the author or someone familiar with them - what is the probability of one of these funds closing if some of its holdings fail and just disappear? Do they replace that stock, preferred stock, or bond holding with another, as is done with open-end funds? The "closed-end" part, and what disadvantages or drawbacks that may possibly entail, is a little mysterious to many investors like myself.

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Thanks for the list! Very informative and useful.