[Volokh] David Bernstein: Crazy Action in Closed-End Mutual Funds:

[notify at powerblogs.com]

Posted by David Bernstein:
Crazy Action in Closed-End Mutual Funds:
http://volokh.com/archives/archive_2008_10_05-2008_10_11.shtml#1223437693


   Closed-end mutual funds, which have a fixed number of shares and are
   traded on stock markets, have been absolutely clobbered by the turmoil
   in the financial markets. Not only have their underlying net asset
   values gone done, but many of them are trading at historically high
   discounts to net asset value. There are even some municipal bond funds
   that normally trade at premiums that are currently trading at 25% or
   so discounts (in part because they are leveraged, but still, a 25%
   discount on a fund that will likely eventually regress to its
   historical mean of a small premium leaves a lot of room for error).

   I'm not a fortune teller, so I don't know whether this is a good time
   to invest or not. But I do know that if I owned an open-end fund,
   especially if I had a tax loss I could take, I'd be shopping around
   for a similar closed-end fund with a massive, historically
   unprecedented discount. For example, why own an open-end emerging
   markets income fund when you can own EDD at a 32% discount?
   (Disclosure: I don't own this fund.) Why own an open-end corporate
   bond fund when a couple dozen closed-end corporate bond funds are
   selling at >25% discounts? And so on.

   Two good websites for closed-end funds: www.cefa.com and
   www.etfconnect.com.