Scott F

Real-Estate Veteran Sees a Rare Opportunity to Buy Quality REITs - Barron's

Adding to the chorus of negative commentators, I have to say that the set of two closed-end funds they suggest are a joke.

AWP was issued less than two years ago at $20 and is now at $3, but they are still charging 1.5% management fee annually to sit on the 20% of original capital they haven't lost yet. In other words they burned through $40 million dollars of investors' money so they could lose $4B in the process. What a great deal. Even though they recently cut their dividend by 78%, some suckers are still going to get lured by their 12% fictitious return-of-capital-esqu... yield. These guys are fools, and so will you be if you buy them, thinking you're getting something at a discount.

IGR is slightly less horrible. It has the same rate of loss and nonsensical dividend but a less obnoxious excess management fee of 1.2%. It makes up for this with the riskiness of leverage.

If you are still compelled to buy any of this crap, maybe on a trading basis, perhaps Seligman LaSalle International Real Estate Fund (NYSE: SLS) is a better bet. More reasonable management fee, given its size and a better discount. At least in its case half of its dividend is actually real, and its smaller size might make it more versatile. Same lousy return record, though. The only other CEFs that look rational are the Asian ones, RAF and RAP. But those are run by RMR Advisors, Inc., as incompetent a bunch of jackanapes as I've ever come across.

Closed-End Funds: Taking It on the Chin?

December did prove oversold, though less than November, but most of these ten funds are not remotely worth buying. They are at deep discounts and going deeper because they are crap. If you could buy a bag of rotten fruit at a discount to its peers, would that make it cheap? Also, these discounts in many cases are actually *understated*. These funds often have made-up dividends (i.e., return of capital), invented NAVs (Type 2 and 3 accounting evaluation methods), huge annual fees, and terrible long-term track records. The managers are largely incompetent and just milking the funds for their fees until they dissolve. These are only trading vehicles, and little more than gambling at that.

Muni Funds: CEFs vs. ETFs in 2009

ETFs cannot use leverage in the manner of CEFs, so all muni ETFs are unleveraged. Picking CEF munis purely on current discount is a risky game. Many are at deep discounts for good reason: junky portfolios, bad management, excessive fees. Far better to find historically wide discounts in lower cost CEF munis with low call ratios and decent ratings. That all being said, credit ratings are near worthless and so are the rating companies. Proceed cautiously.

Opportunities for Gains in 2009: CEF Year-End Muni Discounts

Interesting finding but not statistically robust. You really need to take random samples of the funds and the sectors and see how reliable this has been over the years. Then you'll have far more statistical confidence that 38% or any % is significantly and causally correlated with year-end. Also, there are macro fundamentals that this ignores. These are largely New York and CA munis which are at high discounts. This makes sense as they have vastly over-leveraged their confederal debt. With so much debt and more growing though mutual financial crises in NY and CA, both are going to have to go to the debt market, cap in hand, and end up paying a lot more for their muni debt. The lower-yielding munis these funds hold are going to get killed, and as all these funds are leveraged, the carnage will be amplified, maybe by as much as the entire discount. Compare these to state munis that have no leverage, and it will give you a better handle on how the market is pricing this risk.

Last Minute Sales Remain in Closed-End Funds

I've been trading closed-end funds professionally for twenty years, and I often have a different take on these funds. Not better, per se, just different. I think these funds mentioned are reasonable. To me, JSN looks more like a short than nearly any of the buy/write funds. Nuveen is a lousy equity manager, out of their depths. Not much discount either. IGD looks neutral at current discount. Only EXG seems like a buy to me. But it's not much of a trading opportunity with its lower volatility. From a trading perspective I like INB and CHW better, but they are lousy to hold: leveraged and with excessive management fees. I don't think any of these funds are ones I'd want to buy and hold. You have to look at total returns with these funds, ignore the yield -- it's meaningless, arbitrary, and made up. Remember, most closed-end funds are poorly managed with excessive cost-structures. They generally are trading vehicles, not ownership material.

CEF vs. ETF Arbitrage in the Real Estate Sector

I don't know; this is pretty thin gruel. ETFs and CEFs are not highly comparable because of CEFs' extensive use of leverage and ludicrous management fees. CEfs should be heavily discounted, considering their poor performance and unresponsive management (have any of you listened to one of their conference calls?). When you factor in their suspension of dividend payments for not meeting asset requirements, you really wonder if the author has done his homework. Lastly, what is the point of an article on arbitrage when you cannot borrow the shares? This does seem like random thoughts with unreadable graphs versus any concerted thinking.

Assessment of Sector Outlooks

The one small problem with this analysis is his use of TIPs. The assumption here is that TIPs represent a default-free, inflation-adjusted return. The only problem is that they depend on governments, particularly our own, to state accurate inflation figures. This is a bit like the fox guarding the hen-house, when so many government expenditures, long-term and short-term, are predicated on low inflation. Predictably, inflation has become politicized, and the numbers are not objective. The U.S. consistently under-reports inflation. Bizarrely, this is something normally conservative and moderate journals never address, be they the WSJ, the NYT, the Economist.

Life After Citi: Shorting High Yield Bonds

Where do you find the borrow for your short position?