Yield of Dreams

Closed-End Funds Touted at Symposium

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marketingI attended Pristine Advisers’ Closed-End Fund Symposium today, but it wasn’t quite clear what the purpose was. Pristine said the event was meant to provide information on closed-end funds for the retail community. And while there seemed to be a mixed bag of attendees, the lineup of speakers included one fund manager after another touting their funds, such as The New Germany Fund, the Canadian World Fund, the Aberdeen Latin America Equity Fund, The Thai Capital Fund, and Tortoise Funds.

Closed-end funds are similar to mutual funds in that they invest in stocks, bonds and other securities. Unlike mutual funds, they are traded on stock exchanges and have a limited number of shares. They don’t trade at the value of their net assets, but at discounts and premiums, similar to the way a security trades. Fittingly, they held the event at the New York Stock Exchange.

Most likely tired of the marketing, nearly everyone who attended the event left before the last speaker came on, Morgan Stanley Smith Barney advisor Austin Warrin, who actually had some interesting points to make. He too, however, heavily focused on the benefits of these funds:

With the closed-end fund space, you really get some of these really great portfolio managers to be able to run their money, run their strategy, and we can evaluate their staff. You get a long-term rate of return, we get the reason why they achieve those rates of return and we get to put them in the stadium. And the investors are really the fans watching that portfolio manager. And if the fan doesn’t like what they see or wants to get out, they put their ticket on StubHub and walk out. Buying and selling of closed-end funds doesn’t affect the manager’s strategy, even if he’s in a short-term slough because if he’s good, he’s got to come back… The volatility in the markets, I think, create a lot of those buying opportunities for discounts for closed-end funds.

All in all, the event didn’t provide much objective education on these funds. What are the pitfalls and the risks associated with them that investors ought to be aware of? How do these funds really work and how are they priced? Isn’t summer typically a time when discounts on these funds are typically narrow? The speakers seemed to assume that attendees knew everything there was to know about the investment vehicles, but wasn’t that the whole point of the event in the first place?

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Casting a gimlet-eye on asset management issues.

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