Closed-end Funds

For those looking for a bargain, it is tempting to buy $1.00 worth of stocks for .85 cents. However, the obverse is also true, when it's time to sell, the selling price is likely to be .85 cents on the dollar. We believe a more compelling bargain would be to compare a fund's current discount to its typical discount over the past year. If a specific fund typically trades at a 5% discount to NAV, but now trades for a 10% discount, the investor is in the position to buy a $1.00 worth of stocks for .90 cents and then sell it for .95 cents when the CEF returns to its typical discount.

A new page devoted to CEF's is in this month's newsletter. It is designed to take advantage of the short to medium term deviations of CEF discounts from their typical premium/discount relationships. The listings are rank ordered by their divergence from their typical discounts. A possible trading strategy would be to buy the CEF's that have an unusually large divergence from their typical discounts and then sell when the discount comes back into the average range. Discounts for newly issued CEF's are likely to deepen as the fund matures, be careful of CEF's that are less than a year old. (see page ?) Note that while it may seem that increases in discount are due to a falling NAV, academic studies have found no correlation between the two. Nevertheless, one may feel there is less risk in selecting CEF's where NAV is rising while the discount is growing.