In furtherance of what may ultimately be a futile effort to become more organized, I compiled a YF portfolio of my current share holdings in closed end funds. I may have neglected some names in this table (shortly after posting, I noted the omission of 100 NFJ, adding $1574 to total shown above).
For those unfamiliar with this type of investment vehicle, this booklet available at the CEF association's web site is a good primer: www.closed-endfunds.com .pdf This is a link to that associations main web site that has useful information. CEFA - Closed-End Fund Association I have been trading CEFs continually since 1984.
I buy and trade CEFs constantly. My overall strategy has been to buy them when they are trading at large discounts to their net asset values and then to consider selling when the discount to NAV narrows or extends to a premium during a period of rising net asset values.
When I shifted out of mutual funds and significantly pared my stock positions in 2007, I established new positions in a bunch of CEFs that paid good dividends, mostly on a monthly basis, for the reasons expressed in this post written in October 2008: Buy High & Sell Low /Retrospective on the Good & Bad This variation in the strategy, while sound in theory, did not work out due to the serious declines in the market after the Lehman failure which caused a tremendous rise in CEF discounts and a substantial decline in their NAV values. The CEFs that used leverage during that period suffered a triple whammy.
Some other posts discussing my strategy or particular funds are as follows:
This list is not comprehensive.
The WSJ provides daily updates of CEF prices and discounts/premiums to NAV.
For the CEFs that pay a fixed dividend on a regular basis, the dividend yield shown at most sites will reflect the yield of those dividends at the then current price. However, some funds pay a nominal dividend or no dividend during the year, and then pay out a distribution reflecting the year's capital gains and previously undistributed income. Since that number varies from year to year, it is frequently not tallied as part of the dividend yield. All of these funds have web sites where historical payment information on their funds can be checked by an investor.
I have recently sold some shares in CEFs when the price was at a premium to NAV, including a complete liquidation of shares held in IRR and FAX (selling then at a small discount), and a reduction in my positions in ETW, EOI, and IAE. The purchase of FAX, when it was selling at 29% discount to its NAV in October 2008, and selling it when it approached its NAV, is an extreme example of how the strategy is supposed to work in theory. Some Nibbles Got Filled: JZE, PJS, INZ and FAX
I will not buy shares in a CEF selling at a premium to NAV. I recently bought shares in three CEFs (IGI , WIW, and GDO) selling at small discounts for reasons expressed in the posts linked above. If the NAV is rising at the same time as the discount is narrowing, I make money in two ways. However, as demonstrated by the events during the market's meltdown starting in October 2008, it is also possible to lose in those two ways, as NAV declines and the discount to NAV expands.
Some funds like Adams Express rarely trade below a 10% discount to NAV. That has to be taken into account when implementing my strategy. Two other CEFs, RVT and RMT from Royce, are now trading a historically high discounts to NAV, due in part in my opinion to Royce ending the managed distribution policy. That policy was ended in early 2009 when the dividends would have had to be paid as returns of capital, as the bear market wiped out unrealized gains in most fund portfolios. A 50% plus fall in the market will frequently have that result. Some funds continued to pay out regular dividends, primarily as returns of capital, which gave the investor the illusion of dividends. I would prefer that the funds either eliminate or reduce the dividend payout to reflect actual income levels rather than to return the investor's capital in the form of a non-taxable dividend which is then recouped by the tax man when the investment is sold.Tax Topics - Topic 404 Dividends Return of Capital Definition
My current view of CEFs as an asset class is simply to use them to achieve diversification and to generate a stream of income to reinvest in another securities. When and if an opportunity arises to make a profitable trade based on a substantial narrowing of the discount in a period of a rising net asset value, I may shift to booking a capital gain which I have started to do over the past several months.
I will add links in this post that are relevant to the topic.
For the few CEF's where I currently reinvest the dividends to buy additional shares, I will simply modify the share count in this portfolio to reflect that change. To evaluate how well the CEFs are doing over time, I will need to add the total amount of cash dividends paid to the holdings value before determining annualized gains or losses. I am not going to add any additional shares for the remainder of the year, and will summarize how this portfolio is doing from time to time during 2010.
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