More on covered call funds (mentions MCN, BEP)

Includes: BEP, MCN
by: Roger Nusbaum

Here is a chart to help explore what is going on with the call writing funds and the CBOE Buy Write Index (BXM), writes Roger Nusbaum. As a side note I had a miserable time trying to find a chart of the index.


Yahoo Finance has no chart of it, Big has a couple of bad data points that make the chart tough to read. Even the CBOE web site didn't have a chart. The point is that despite what seems like a proliferation of these types of CEFs, we may be a long way from saturation.

This chart specifically compares Madison Claymore Covered Call Fund (NYSE:MCN) and a newer fund called S&P 500 Covered Call Fund (NYSE:BEP). As I understand the description of BEP from ETFconnect, it is meant to be an index fund that mirrors the BXM index. I remember reading something from Galatime a while back citing some research that the other CEFs are actively managed and lag the BXM. For anyone who is new, MCN is a personal and client holding. I started writing about these funds last October.

I have been watching BEP since it came out. If, in fact, owning a true index fund is better than owning something like MCN it makes sense to consider a change. So far that has not played out. You can see from the chart that BEP is lagged. The chart may be distorted because BEP went ex dividend by a dollar in mid June, but of course MCN went ex dividend by $0.32 on May 11.

It is possible that the performance can be attributed to the market working off the sales charge that is embedded into the offering price of new closed end funds, which for a fund priced at $20 is around $0.90. If that is the issue, then we should start to see some better performance soon. If not, then this could turn out to be a good lesson about what can go wrong with these funds, will may have to wait a while to know for sure.