Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Buy a Portfolio of Stocks at a Huge Discount with Closed-End
Funds |
Published:
November 17, 2008
Mutual funds have become a dominant force in the global
investment landscape. As of the end of 2007, more than $12
trillion was invested in U.S. mutual funds, nearly double the
total assets of U.S. funds in 2002. And mutual funds aren't just
a U.S. phenomenon -- a total of $26.2 trillion is invested in
mutual funds globally.
But while mutual funds are enormously popular, there's another
lesser-known type of fund that's been around even longer --
closed-end funds. Closed-end funds have been in existence since
at least mid-19th century Britain. But with only $315 billion in
assets in the U.S., this phantom fund class is only about 2.5%
the size of the mutual fund industry.
Both mutual and closed-end funds offer some advantages for
investors. Chief among those is diversification -- both mutual
and closed-end funds represent ownership in a broad portfolio of
stocks. Diversification can lower an investor's overall risk and
enhance return prospects. But there are also some key
differences between the two -- and one in particular -- that can
make closed-end funds a more compelling choice for investors.
Closed-end funds are listed on one of the major exchanges. You can buy
shares in a closed-end fund directly from your broker and can
generally expect to pay the same commissions you'd pay to buy a
normal stock. There are no up-front sales fees or fees for early
redemptions, like you might expect from a mutual fund. Better
still, closed-end funds trade throughout the normal trading day,
so you can buy and sell shares in a closed-end fund at any time
you wish.
And, of course, there are no minimums. You can buy closed-end
fund shares in any amount you desire. Many are highly liquid and
trade hundreds of thousands of shares every day.
But there is one major, lesser-known feature of closed-end funds
that all investors should be aware of. This feature, if fully
understood, can offer an advantage to investors, or it can be
detrimental. Specifically, I'm speaking of the concept of
premiums and discounts.
Because a closed-end fund trades throughout the day just like a
stock, its price is determined by market demand, not by the
value of the investments it holds. This means a closed-end
fund could trade above the actual value of its holdings, or at a
premium. It also means that it can be priced below the value of
its holdings, or at a discount. Although it might seem as though
closed-end funds should trade at or near the value of its
holdings at all times, in practice this is
definitely not the case.
The recent market environment is a perfect example. In the
October panic-driven sell-off, investors sold-off closed-end
funds en masse to raise cash with little regard for underlying
values. As a result, the discount on many funds
exploded to two or more times their normal levels.
Over the long term, however, closed-end shares do tend to revert
to their intrinsic value. In some cases,
management companies will even try to speed up that adjustment
by actually buying back their own shares if they're trading at a
discount. Meanwhile, some hedge fund managers have been known to
actively short-sell closed-end funds that are trading at big
premiums.
It's a good idea to try to buy funds that are trading either at
discounts to their NAVs or at levels very close to this. If you
can buy a fund at a discount, then you're essentially buying
that fund's assets -- the stocks and bonds held by the fund --
at a bargain price. In this case, you stand to profit if and
when that discount window is ultimately closed. As a general
rule of thumb, funds that are trading at premiums of +3% or more
should be avoided.
Important Note: In the remainder of this article,
Market Advisor
editor Paul Tracy provides the names of five of the best
closed-end funds trading at a significant discount. And even
better, he provides in-depth profiles of two of his favorites --
one that invests in major companies in an emerging-market
country, and another that focuses on telecom companies in
emerging markets. However, in order to view the remainder of
this article, you'll need to subscribe to our premium investing
newsletter -- Market
Advisor. After you subscribe, you'll receive
immediate access to this full article, as well as our monthly
Market Advisor
newsletter and a host of additional premium content. Please
visit one of the following links to continue.
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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receive in-depth guidance on today's leading investing
opportunities each month, plus access to five model
portfolios, please subscribe to Paul Tracy's premium investment
newsletter -- the StreetAuthority
Market Advisor. |
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Investing Doesn't Get Any Easier Than This |
Stock picker Amy
Calistri's strategy is as simple as investing gets -- just one idea
a month designed to make money in today's market. Invest this way
and you don't have to worry about oil prices, automaker bailouts, or
what the Fed is up to -- because every "bad" economic development
actually helps some investment or another.Your investing life can
get a lot simpler -- starting today.
Go here to learn about Amy's simple investing strategy.
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