Thus spake Zarathustra

On the First Trust Value Line 100 ETF Conversion: Advantages and Drawbacks

Give me a break!

That all sounds very nice, but the real facts are these:

Doliver showed up with a large position in FVI, which continued to trade at a large discount. First Trust decided to recommend a conversion to an ETF to head off an unannounced, yet perceived threat. A few days later, they added FVD to their conversion list, rather than go to war with Art Lipson who had acquired a large position of that fund at a discount and was rattling his sabre. First Trust neglected to include FVL in the list of conversions, because there were no threats to FVL at that time. Next, they liquidated FVI in order to avoid a proxy fight over its conversion. Lipson supported the FVD conversion and it went through. A few months later, Doliver showed up with a large position in FVL. First Trust then announced that they would convert it into an ETF as well, heading off another perceived threat. Apparently, there was no opposition to the FVL conversion, and it was recently completed.

There are four things that eventually happen when closed-end funds trade at large discounts and sophisticated, large investors get involved: (1) they convert into or merge with open-end funds, (2) they liquidate, (3) they convert to ETF's, or (4) they announce managed distribution policies that involve high payouts and returns of investor's capital.

Certainly someone needs to put a stop this this sort of thing. Otherwise, the large asset management companies will not find it lucrative enough to bring out new closed-end funds and they will die out. Perhaps we need legislation that makes acquiring large positions in discounted closed-end funds illegal.