Sunday, December 09, 2007

Income Oriented Closed-End Funds Trading at a Discount to NAV

A number of income oriented closed-end funds are trading at a discount to net asset value (NAV). The ones with the largest discount tend to be those with a high percentage of the fund assets invested in the financial sector. The subprime mortgage issues have weighed heavily on financial shares.

According to Thomas J. Herzfeld, publisher of The Investor's Guide to Closed-End Funds,
"these funds issue a fixed number of shares, which then trade on exchanges like stocks. As a result, prices are determined by investor demand and often differ from the value of the funds' portfolios. When the market swoons, as it did this year, investors often dump them indiscriminately for tax losses. That's what creates the discounts."
An investor can search for closed end funds using various criteria on the Closed-End Fund Association website. Following are some of the income oriented funds with wide discounts to NAV.

(click on table for larger image)

income oriented closed-end funds at discount to NAV December 9, 2007
Source: Closed-End Fund Association

Investors should keep in mind some of these closed-end funds can be more volatile due to higher exposure to certain sectors like financials. For example, in the Dreman/Claymore fund noted above, the financial sector represents 40% of the investments. Additionally, the largest holding, Altria Group, accounts for over 16% of the assets within the fund.

For Closed-End Funds, It's Open Season
By: Lewis Braham
December 17, 2007

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