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  • JGH - A Discounted Opportunistic Choice In The CEF Arena

    JGH is a new fund created by merging two long tenured funds (JGG and JGT) by Nuveen.

    Nuveen combined the two funds, tweaked with the funds' investment mandates and used economies of scale to create JGH as a larger, more focused and more liquid fund in the global high income arena.

    With the recent weakness in the fixed income Closed End Fund universe, not surprisingly, JGH has seen both its NAV and its market price go lower since inception a few weeks ago.

    I believe the current weakness is attributable to both general weakness in the High Yield arena and some tax loss selling ahead of the year end by investors who wish to offset losses againt their realized capital gains.

    As such , JGH closed at a 9.44% discount to its NAV last night.

    While we often see a snap back higher in the CEF after December pronounced weakness due to tax selling, JGH offers a unique opportunity to take advantage of something hardly any other funds offer right now.

    Nuveen has anounced that as part of the funds merger discussed above, it will initiate a Tender Offer for up to 25% of the JGH shares at a price of 98% of NAV.

    Indeed the Tender Offer was declared effective on December 4th, 2014 and will expire January 9th,2015:

    The fund has not declared its first dividend yet but is expected to declare a dividend rate which would be higher than 7% (probably closer to 7.5%-8% given the price weakness lately).

    Buying the fund at current levels at over 9% discount would enable investors to get an exit for 25% of their shares (assuming full participation) or even more than 25% (if a smaller part of all shares will be tendered).

    Due to the above I view JGH as a very good buy opportunity either for new money to be deployed in the Global HY arena or as a swap into from other CEF's who would be sold to harvest tax losses before the end of the year.

    Dec 11 9:17 AM | Link | 14 Comments
  • Is BKN Worth The 3.1% PREMIUM Over NAV? In Short: NO !!

    Muni Closed End Funds (NYSEMKT:CEF) have rallied nicely from the tax selling before the end of 2013 during December.

    Some funds had been trading at discount to their Net Asset Values (NYSE:NAV) of around 10%, which is quite higher than the long term average.

    Many of the funds we saw trading at premium to NAV until the summer of 2013 turned south during the summer months and reversed course to end the year with a very steep NEGATIVE total return, spooked by the general malaise in the fixed income market following the Fed's infamous "Taper Tantrum" as well as some negative headlines emanating from Detroit and more importantly Puerto Rico (PR).

    December enabled investor to grab Muni CEF at yields in excess of 7% (TAX FREE) and as a bonus, to get them at very high historical discounts to their NAV.

    While some funds still trade at discounts to their NAV's (admittedly, smaller ones but still in excess of 5% discount), other funds, that were mentioned in publications and interviews like this one :, enjoyed a terrific rally that pushed them from undervalued terrain all the way to over-valued valuation with market prices exceeding NAV's handsomely.

    Herein lies the conundrum; BKN is one of those funds and my research tells me there is no fundamental reason for it to differ from other funds in the same arena managed by Blackrock, and for that matter, other funds managed by other well known and respectable fund management companies (Nuveen, Eaton Vance, Invesco etc.).

    At yesterday's close BKN was at a 3.15% PREMIUM to its NAV while yielding about 6.52%.

    Looking at its average valuation of the past 3 and 5 years BKN has been trading at Premiums of 2.35% and 2.02% on average, respectively.

    Looking at a few of the other Blackrock managed funds like BYM,MHD,MQT,BTA just to name a few we see a very stark difference in relative valuations vs. BKN:

    All of these funds (and many more by other managers, the list is too long to place here, but a screen of CEF will uncover those opportunities) offer much better fundamentals than BKN:

    1) Higher dividend payouts , to the tune of 7%-7.15% (vs. just 6.52% in BKN)

    2) Better pricing - those funds (and again, many others) trade at significant discounts to their NAV's to the tune of 5.5% to 7.7% DISCOUNTS.

    3) Much better relative valuations : While BKN trades ABOVE its 3 and 5 years average valuation, these funds trade WELL BELOW their 3 and 5 year average valuations to the tune of anywhere from 4% to 6.5% BELOW their average valuation.

    To sum it up - one can get about 0.60% better yield AND about 8.6% to 10..8% difference in Premium vs. Discount AND about 5% to 7.5% in Relative valuation by selling BKN and swapping into other Muni CEF's that are much more reasonably valued and would provide a much better return going forward should reversion to the mean occurs.

    The best part is that you are not changing even fund managers by staying with Blackrock managed funds (although you can choose other fund families with similar superior characteristics as well)

    Disclosure: I am short BKN.

    Additional disclosure: I am long a host of Muni CEF's some of which were highlighted in this post.

    Jan 14 3:57 PM | Link | 1 Comment
  • BKN-From Undervalued To Overvalued In One Week- Time To Sell And Swap To Better Values

    BKN was mentioned in a 12/17/13 Blogpost in Barron's as one of a few Closed End Funds (NYSEMKT:CEF) favored by Douglas Kass from Seabreeze

    I totally agree with the premises cited in that blogpost as I d believe the muni market has been pressed lower by a myriad of factors from general weakness in the bond market to headline negative news emanating from Detroit and Puerto Rico coupled with some tax selling due to a very weak year.

    However, in the course of the past weak, BNK has soared from a DISCOUNT of 8.48% on 12/16/13 to a PREMIUM of 4.15% at the close today completing a huge 13.13% rally in the course of just one week.

    Paradoxically enough the NAV on BKN has actually gone DOWN over the past week by 5 cents to $13.99.

    The current 4.15% premium is higher than the average premium of the past 5 years which stands at 1.87%.

    Thus, I look at this move as an extreme reaction to the above mentioned post and Mr. Kass' observations and believe a swap opportunity exists here to go out of BKN and into other Muni CEF's who are still trading at attractive DISCOUNTS both on an absolute level as well as on a relative level vs. their 5 year average.

    A few of the names that come to mind are BYM, NAD and VGM.

    There are other funds that can serve that purpose as well giving you higher yields with better valuation vs. BKN.

    This scenario presents two courses of action:

    1) For BKN holders : SELL BKN and buy a different discounted CEF

    2) For arbitrageurs : Sell short BKN and buy a different discounted CEF

    I believe the above strategies would do well over the next few months as people (perhaps even Mr. Kass himself) would realize that BKN does not present a good value anymore , especially compared to other funds who yield higher yields and are attractively discounted vs. their NAV's.

    Disclosure: I am short BKN.

    Dec 25 3:41 AM | Link | Comment!
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