Most of life’s encounters, good or bad in social welfare, present us each individually with the opportunity to choose our own long term benefits and detriments. By circumstance, I was exposed professionally to see Mary Meeker’s high times at Morgan Stanley while the ink was still wet on my undergraduate diploma. I’ll call loosely the phenomenon “Mary’s World”. In the spirit of the Holiday Season, I’d like to offer “Thanks” for the wisdom provided by a youthful exposure to Mary’s World.
Dan Plettner
56 posts
The notion of “Asset Captivity” among Closed-End Funds doesn’t get much mainstream press. Instead, mainstream press focuses on a primary symptom: the illusion of a Black Friday sale on the New York Stock Exchange. A market price representing a discount to Net Asset Value (“NAV”) is only a relevant bargain if the discount is going to narrow at some point in time. Such occurs less often among funds whose governance choices could conceivable be interpreted as prioritizing Assets Under Management (“AUM”) or billable assets over shareholder value.
On Friday, November 19th, 2010, the market price of Energy Income and Growth Fund (FEN) declined significantly while the Net Asset Value (“NAV”) increased. A market premium narrowing roughly by half in just one day showcases the supply demand dynamics affecting Closed-End Funds (“CEFs”).
The recent inquiry and writing from a Dow Jones reporter whom I respect has inspired me to share a more detailed perspective of the Korea Equity Fund (KEF)
A risk-averse approach to wealth today demands greater acceptance of what are traditionally “risk assets”. A historically significant rally may be approaching as effective risk tolerance normalizes.
If ever there was a sign that individual investors need protection from themselves, it may have shown up in Tuesday’s November 2nd 2010 market action in Equus Total Return (EQS) shares. I have no position. Rarely do shares of a company trade higher on news that it is entering wealth destructive transactions. However that is exactly what occurred on November 2, 2010 with EQS shares trading significantly higher. Investors paid up for the right to infuse additional capital into a Closed-End Fund with a transaction which would appear highly destructive to per share published Net Asset Value.
The market discount of Cohen and Steers Dividend Majors Fund (DVM) shares has narrowed by more than 11% in less than two months. On the evening of September 15th, 2010 Cohen & Steers announced adopting a level rate distribution policy, and declared third quarter distributions for its affected Closed-End Funds. That afternoon, DVM had closed at $11.20, a 15.66% discount to its $13.28 Net Asset Value (“NAV”). Yesterday, November 4th 2010 DVM closed at $13.61, a 2.86% discount to its $14.01 NAV. (Data source: CEF Connect)
The rally in Closed-End Municipal Bond Funds has taken a breather, if not corrected as money has poured into the most traditional risk assets since late August. Even the price of my current favorite Closed-End Municipal Bond Fund, Western Asset Municipal Partners, Inc (MNP) has fallen from $15+ at the end of August to a price below $14.50.
Friday afternoons and weekends have long been observed an opportune time for low profile public companies and Closed-End Funds to disseminate undesirable but market-relevant news. The conspiracy theory explanation infers that if nobody is around on Friday afternoons, the news will be ignored or forgotten by the time Monday rolls around. I’m not a big believer in the theory, but I attempt to be alert at all times.
I continue to favor direct ownership in MLPs. Even beyond the taxation profile, I believe there are numerous MLPs in indexes inherently exposed to unbalanced risks. I believe Incentive Distribution Rights (“IDRs”) to certain MLPs general partners can represent a tremendous governance conflict of interest of long term consequence. The only way I can be certain I am taking only those risks I am comfortable with is having control of what goes into my basket.
In September I here added a Cohen and Steers Closed-End Fund which was subject to a distribution increase, RQI. Similar to a prior holding, SLS, which was discussed in the webinar, RQI allows me to diversify my portfolio so as to include categories of exposure to income assets whose income can be dynamic. There are risks in everything of course, but I want to pick and choose which risks I accept in what proportions, rather than embracing peak interest rate risk in all Taxable Income style holdings.
I continue to believe the market for Closed-End Municipal Income Funds is extremely inefficient. I’m certainly happy with what I observe in the daily fluctuations, income, prospects for monthly dividend hikes, and attractive valuations in the funds I hold.