Closed End Funds

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Sep 26, 2005 3:48 pm

Since I have been at MS, I have not seen any closed end fund IPO's.  We currently have one pending.  They are saying it is a diversified portfolio that used covered calls to get income (8-9%).  Does anyone have any insight?

Sep 26, 2005 9:12 pm

Over the last year, these covered call closed end funds are some of the
only ones (other than the energy ones) that have held up after the
initial IPO support falls off.

Sep 26, 2005 9:38 pm

I would stay away, even the ones that work trade at significant discounts to there NAV, you can check them on www.cefa.com I got burned early on b/c no one ever explained the risk to these closed ends, buyer beware.

Sep 26, 2005 9:52 pm

Closed end funds paying 8-9% are really returning capital in the form of

dividends.   Its a strategy that works if the market appreciation is in excess

of 6-8%. I did JTA, Nuveen Total Return Strategy about 2 years ago. Its not

a big deal....my other equity picks are much better and I've been planning to

dump it.



If it sound too good....it probably is.   

Sep 26, 2005 10:37 pm

The Scudder Global Commodity and Stock Fund (GCS) IPOed at 15 earlier in the year and closed well above 16 again today.  If the fund trades at more than a 10% discount to NAV in the first 2 years of trading, then Scudder will buy out the discount at certain intervals.

Sep 29, 2005 12:06 am

CEFs are a lot more complicated than most brokers realize.  There
are some absolutely awesome long term performers though.  Buying
one at IPO is suicide for the client and they will see what you did to
them soon enough.



Paying out the 9% yield is really selling options to produce
yield.  It's all well and good until the market goes up and your
client is left in the cold.  These things don't have a long
history, just be aware that they could tank quickly.  Paying 9%
doesn't mean it's paying out principal.  I could be - read the
reports.  They could have built up UNII.

Sep 29, 2005 7:23 am
Roberts:

CEFs are a lot more complicated than most brokers realize. There

are some absolutely awesome long term performers though. Buying

one at IPO is suicide for the client and they will see what you did to

them soon enough.



Paying out the 9% yield is really selling options to produce

yield. It's all well and good until the market goes up and your

client is left in the cold. These things don't have a long

history, just be aware that they could tank quickly. Paying 9%

doesn't mean it's paying out principal. I could be - read the

reports. They could have built up UNII.



Sep 29, 2005 7:30 am

Sorry for double post...still can't figure out quotes.



Roberts:



Have you seen mutual fund hypos that show a systematic withdrawal where

over years the client receives a steady distribution even if account value

declines?



That's exactly what is going on lately with CEFs. They call it a "managed

distribution" = (dividends, options and CAPITAL) in order to keep the

dividend yield level.