CEF Weekly Review: Politics Trump Reality

Includes: ADX, BIF, ECF, GUT, PIF, SRO
by: Joe Eqcome

CEF Weekly Review: The 13 closed end fund (CEF) types on average posted a 1.0% decrease for the week ending 1/29/10. On an aggregate, unweighted basis, the weekly average price change for the 515 CEFs was down 0.8%.

The weighted 49 CEFs comprising the Claymore CEF Index registered a decrease of 2.8% for the week and it is down 6.1% YTD. The S&P 500 decreased 1.6% for the week and 3.7% YTD.

This week’s political wrangling trumped encouraging corporate earnings and economic news. It will constitute the “wall of worry” for stocks to climb in ‘10.

(Click here for YTD CEF performance. The table is based on a 275 CEF sample size as all the data fields are not available for the CEF universe.)

The Eqcome CEF Fear Index was essentially flat for the week with the unweighted CEF share prices and related NAVs both declining 0.8%.

The CBOE Volatility Index (VIX), which typically moves inversely with the stock market, eased 9.8% for the week in the face of a 1.6% decline in the S&P 500. This easing occurred a week after the VIX spiked 50%. The stock market appears to have lagged the VIX and has now caught up. On Friday the VIX closed the week with an upward advance.

While the S&P 500 average daily trading volume was down 7.2% to 5.1 billion shares, the previous week’s average daily volume was up 30%. So, there was broad investor participation—mostly on the downside.

CEF Weekly Fund Type Performance: There were only two fund types that posted positive share price performance. These were both the muni fund types: SingleStMuniFnds and NatMuniBndFnds—each with very modest advances, 0.4% and 0.2%, respectively.

Equity-oriented funds took a pounding with WrldEqFnds placing last for the second week in a row. While last week’s concern was over China’s monetary restraint, this week global anxiety migrated to greater Europe. Concern over Greece and the fiscal health of some European and euro “what-to-be” economies pressured the European currency. The euro broke the 1.39 barrier for the first time in 6 months. The USD was the beneficiary as its currency ETF (NYSEARCA:UUP) posted at 1.6% gain.

The PrcNAVSprds[1], which typically move in the direction of the stock prices, mostly adhered to the rule. The only conciliation one could take was that the declines in the NAVs of the equity-oriented fund types wasn’t as great as the share price declines—possibly indicating this group may be oversold in the short-term.

CEF Winners and Losers: One of the CEFs with the greatest positive PrcNAVSprd for the week was DWS RREEF Real Estate Fund II (SRO). Its PrcNAVSprd was 8.9% as a result of its share price rising 8.1% and its NAV declining 0.8%. On Friday, the 29th, SRO stockholders approved the Board’s proposal to liquidate and dissolve the Fund. A “Cessation Date” is to be determined by a committee of the Board. The shares are currently selling at $1.17 per share with a NAV of $1.24 resulting in a discount of 5.7%. How much of the discount will remain after transaction and organization costs of winding down the fund remains to be seen?

This week’s CEF with the greatest negative PrcNAVSprd was Gabelli Utility Trust (NYSE:GUT). GUT stock price was off 12.1% while its NAV was off 2.4 resulting in a negative PrcNAVSprd of -9.7%. GUT has the highest premium in the CEF market segment and has been highlighted here previously as a potential overvalued security. (See: “GUT's Premium Doesn't Appear Based on Investment Returns (1/28/10))

Economic & Earnings Outlook: (Click here for next week’s economic calendar; click here for earnings announcements and estimates.)

ETFs: (Click here for ETF YTD sector performance.)

Insider Trading: There was limited insider buying in the last week of January with only five filings.

The Horejsi Group (Horejsi) continued its insider buying of its two targeted CEFs. It added 199,587 shares with a market value of $1,187,837 to its Boulder Growth & Income Fund (NYSE:BIF) position. For the month of January it has purchased and additional 656,445 shares for $3,851,774. Horejsi has now accumulated 7,632,639 shares in BIF representing approximately 30% of the outstanding shares.

BIF’s stock price has remained steady in a declining stock market possibly as a result of its Berkshire Hathaway’s “A” shares holdings (NYSE:BRK.A) which represents 25% of its portfolio. After last week’s 50 to 1 split of the “B” shares, this week Berkshire’s “B” shares were added to both the S&P 500 and the S&P 100 providing an additional boost to the share price.

Pundits have pointed out that other stocks added to the prestigious indices have continued to add gains for the first 10 days after the announcement. The last addition to the S&P 500 was Goldman Sach (July 9, 2002) which gained 7.9% in the first 5 days after the announcement and an additional 8.6% the subsequent 5 days.

Horejsi also continued its insider buying of Denali Fund (DNY) where its stake is now 76% of the outstanding shares (3,142,490 shares). Horejsi acquired an additional 10,262 shares bringing its monthly total acquisition to 22,706 for a capital outlay of $323,211 for the month.

Insiders’ tendered 589,190 of Special Opportunities Fund, Inc. (PIF) pursuant to the terms of the Tender Offer Statement filed by the Issuer on December 23, 2009. PIF purchased up to 75% of the outstanding common shares at 99.5% of the NAV of $14.25 (tender share price: $14.18).

There was some deminimous buying in Ellsworth Fund LTD (NYSEMKT:ECF) by a director who added to an existing position and an officer of Nuveen Michigan Dividend Advantage Muni Fund (NYSEMKT:NZW) who established a small initial position. (Click here for a hyperlink to the Joe Eqcome CEF Weekly Insider Report.)

CEF Distribution Announcements This Week: The following is a link to a table of CEF distribution announcements this week as well as the previous week’s with yet expired ex-dividend dates. The list is not intended to be inclusive. (Click here for Weekly CEF Distribution Announcements.)

CEF Corporate Events: NFZ NZW and NVJ, three Nuveen muni funds, filed registration statements with the SEC to issue MuniFund Term Preferred Shares (NYSE:MTP), a form of preferred stock.

Nuveen Virginia Premium Income Municipal Fund (NPV) called for redemption at par a portion of its outstanding auction-rate preferred securities. This redemption will be funded by proceeds received from the issuance of MuniFund Term Preferred Shares (MTP). NPV is redeeming $28.5 million of its $57.0 million of currently outstanding ARPS.

Tortoise Capital Advisors, LLC, announced it has launched the Tortoise MLP Index, a float-adjusted, capitalization weighted index of energy master limited partnerships (MLPs). The Tortoise MLP Index is comprised of publicly-traded companies organized in the form of limited partnerships or limited liability companies engaged in the transportation, production, processing, and/or storage of energy commodities.

Kayne Anderson Energy Development Company (NYSE:KED) announced its unaudited net asset value of $168.5 million or $16.58 per share as of November 30, 2009. This represents an increase of $0.56 per share (or 3.5%) from the Company’s NAV at the end of the third quarter and an increase of $0.48 per share (or 3.0%) from the Company’s NAV at the end of fiscal 2008.

CEFs Focus for the Week: The focus stock of the week continues to be Adams Express (NYSE:ADX). As I’ve said a number of times, the investment performance of ADX’s investment management has been relatively good. Yet, inaction on the part of the board has caused its stock price to continue to languish at an unacceptable discount. This inaction does not best serve its own investment management or its shareholders. This is a serious deficiency of the current board. (See: “The Case for Tender, Liquidation or Conversion of ADX” (3/2/09).)

It maybe time for shareholders to take matters into their own hands and petition the board and demand action with regards to a pro-active plan to address the persistent discount. The options are an “In-kind distribution”, a managed distribution policy, a conversion to an actively managed distribution policy or the removal of the board. (Can anyone think of other value creating alternatives?)

If there is enough interest, I’ll craft a petition that shareholders can download it from my website and send it to the ADX board via e-mail.

Consider it food for discussion.

Disclosure: Owns a diversified portfolio of CEFs including a long position in BIF and ADX