Minyan Mailbag: Closed End Funds
You may not be exposed to as much upside equity performance as you might think
Good Afternoon from Italy. I have been looking at convertible closed end funds as a long term investment. I have very little classic equity exposure, so if I am wrong about the markets, at least it would give me some upside participation to equities.
There seem to be huge differences in the dividend yields, premiums/discounts and equity choices of all the funds.
I am, of course, looking for understanding more than advice here, but how can one value the different funds.
The dividend yields, for many of the funds, don't appear to be convertible style yields. Is this done only with leverage or do they payout some of their assets through dividends? Or is there something else going on? I assume, just looking at the yields, that the lower ones are lower risk, but that could easily be wrong... Maybe the lower yield implies being more in the money and being more equity sensitive...
Why are people paying such high premiums for funds such as Calamos (CHI)? All things being equal (which they aren't of course) it seems like a 15% discount would be a lot better than a big premium, no?
Obviously I have been looking at the old info of the holdings to get an idea of the risk and looking at the volatility of the fund to get an idea of the risk.
Any thing else I am missing here...?
When buying closed end funds, make sure you look at the underlying securities to get a good feel for what they are actually doing despite what they say they are.
I suspect that a good portion of a closed end convert fund positions are straight corporate debt, thus increasing the quoted "dividend yield." If this is the case, you may not be exposed to as much upside equity performance as you might think.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter