Why are these Funds Down so Much??
Dwight 
09-13-2008, 8:42 AM | Post #2561245 |  10 Replies
I have a number of CE funds- JGT, BGY, PHT, PHK, NCV, ESD, BCR, BLU, CWF, ZF, PHF,MAV, ETO etc and with their returns being so very good I am wondering why they are sliding so much. In particular, this past Friday a number of them had significant increases in their NAV, yet the funds went down!!! I am going to analyze my funds discount as of today but a brief look has a number of them at very high discounts- 13-19% (JGT)- higher than I have ever seen. The few at Premium- one is ERH utility pays the same dividends and the NAV is still good but the premium is about half what is was a month ago. I have been investing for a while and consider myself knowlegable, but I raly do not know what the market is up to. If these CEF were mutual funds and priced at their NAV, most would significantly higer priced than they are. What am I missing?  I do not plan to sell- I live off the divdends/capital gains (average12-14% now) and I am very reluctant to sell anything that is at a double digit discount- my urge is to buy more (like HIX and for JGT at a 19% discount). Thoughts????
10 Replies
Re: Why are these Funds Down so Much??
09-14-2008, 12:53 PM | Post #2561731
Hide

Dwight:
I have a number of CE funds- JGT, BGY, PHT, PHK, NCV, ESD, BCR, BLU, CWF, ZF, PHF,MAV, ETO etc and with their returns being so very good I am wondering why they are sliding so much. In particular, this past Friday a number of them had significant increases in their NAV, yet the funds went down!!! I am going to analyze my funds discount as of today but a brief look has a number of them at very high discounts- 13-19% (JGT)- higher than I have ever seen. The few at Premium- one is ERH utility pays the same dividends and the NAV is still good but the premium is about half what is was a month ago. I have been investing for a while and consider myself knowlegable, but I raly do not know what the market is up to. If these CEF were mutual funds and priced at their NAV, most would significantly higer priced than they are. What am I missing?  I do not plan to sell- I live off the divdends/capital gains (average12-14% now) and I am very reluctant to sell anything that is at a double digit discount- my urge is to buy more (like HIX and for JGT at a 19% discount). Thoughts????

I think if a CEF depends on leverage to juice its returns, the auction rate mess has something to do with the discount to NAV.  Some investors, myself included, are balking at investing in these until we see what happens once the auction rates are all redeemed.  Others want out for the same reason, hence the selling and lack of buying, which widens the discount.

http://online.wsj.com/article/SB122127633604731647.html?mod=googlenews_wsj

Re: CH; LAQ
09-14-2008, 11:50 AM | Post #2561703
Hide
Most of these funds have done very poorly againt S&P500. The reasons including the 30%+ leverage and the monthly payouts. The monthly distributions is important to income investors; however, having to make a distribution during market down turn is like be forced to liquidate some positions at cheaper prices. Open end mutual funds faces the same problem (may be in a bigger way) as investors rush to redeem shares in bear markets. 
Re: CH; LAQ
09-14-2008, 7:28 AM | Post #2561583
Hide

Here's a paste from another CEF board showing how the market price has very recently diverged from the NAV for the three EV Div-Capture funds; this could be a good signal for those interested in such funds (XETGX, etc are the symbols for the NAVs):


http://finance.yahoo.com/q/ta?s=EVT&t=3m&l=on&z=m&q=l&p=&a=&c=xevtx

http://finance.yahoo.com/q/ta?t=3m&s=ETO&l=on&z=m&q=l&c=xetox

http://finance.yahoo.com/q/ta?t=3m&s=ETG&l=on&z=m&q=l&c=xetgx
 

Last I looked, ETO had the smallest amount of preferred shares and the largest amount of natural resources (energy and mining)

Re: CH; LAQ
09-14-2008, 6:36 AM | Post #2561569
Hide

Christopher...The above posts written above about ETG cover the benefits, I believe, of owning this fund. The downsides are mentioned as well....The NAV has lost north of 20 % so far this year and I am not sure how they value in their preferred's when stating the NAV. I suspect they have to be accurate when stating the NAV of the fund after the days trading just like everyone else.

I would think each of us has to see where this fund may fit into our portfolio. I like the sectors where ETG is concentrated. (Global energy, utilities,telecom, financial,metals/mining and staples). I like the relatively low fee ....This relates to it's dividend capture policy. Brokerage fees annualy would be through the roof if I employed this system myself....With ETG it is incorporated into the mgm't fee and they can worry about the timing. Perhaps most important however is that ETG is not selling it's assetts in order to fund the distribution. That I like!!! It's all "investment income". 

Now granted the declining market NAV is no reason to throw a party but without getting into too many numbers I compare this fund with my core holding...American's CAIBX. It's unleveraged and global as well ...Has a bit more of a bond component though.  If you look at the actual NAV of leveraged  ETG compared to unleveraged CAIBX they are pretty close. ETG is much more concentrated and therefore more volatile.....but that's the trade-off...A higher concentrated yield for diversity. Another reason I continue to add to ETG. Seems that if you own both these funds you may be getting the best of both worlds.

I'm not trying to persuade anyone one way or the other but mentioned here above, investor sentiment palys a big part in the trading NAV of this fund. I remember last spring and summer when everyone felt good and the NAV just kept rising day after day. I am hopeful those days will return.

Mariner......    

CH; LAQ
09-13-2008, 10:38 PM | Post #2561508
Hide

I have the above in my portfolio, and recently they have been smashed down severely.

Does anyone have any thoughts on the wisdom of holding them?

ETG = 18% preferred stocks
09-13-2008, 9:16 PM | Post #2561483
Hide

ETG's current discount looks inviting at least initially. In looking at the Eaton Vance semi-annual report for holdings as of April 30, 2008, the portfolio included about 18 percent in preferred stocks including many banks such as Lehman, Wachovia and Citigroup. I am wondering if the NAV noted on the firm's web site includes "mark-to-market" pricing for the preferreds, many of which have sufferred huge markdowns in recent days.

Thank you very much for the initial post and responses.

 Bob

Re: Why are these Funds Down so Much??
09-13-2008, 1:12 PM | Post #2561349
Hide

""These discounts expand during falling markets....(until) investor sentiment varies from the broader market" (into a specific sector).." -scm

 Thanks.  What I really meant was that the discount expansions and contractions  are because retail investors populating CEF tend to react more emotionally to market trends, particularly in the later stages of strong market movements, than the institutions which dominate ownership of the individual portfolio holdings. I think those that buy when the CEF discount is near historic highs and sell near historic discount lows probably do pretty well, because they catch the CG gains relating to reversions to mean (the equilibrium discount) in addition to the distributions. 

For income investors, sticking with a good CEF may be the better solution. JMO as always and fwiw.  Bill

Re: Why are these Funds Down so Much??
09-13-2008, 11:35 AM | Post #2561307
Hide

"These discounts expand during falling markets....(until) investor sentiment varies from the broader market" (into a specific sector). Very good point Cham! I've followed ETG for a few years now and until recently the discount has been in the 5 to 10 % range. That said I also agree that besides yields and premiums/discounts one has to always consider...CEF or not, does this investment have the potential for improvement? In ETG's case I have to think Yes.

Mariner....

P.S. I would like to correct myself...ETG is a Global CEF (not ETF) using a dividend capture approach which does boost it's expense a bit but I still think it is comparable or even low compared to others that are Global and employ this dividend strategy. 

 

Re: Why are these Funds Down so Much??
09-13-2008, 10:26 AM | Post #2561284
Hide

As has been discussed here many times, every CEF has an "equilibrium" discount which is largely determined by three factors: expense ratio, portfolio asset class liquidity and management reputation.  These discounts expand during falling markets and contract during rising ones, as CEF (retail) investor sentiment varies from that of  the broader market for the asset class or sector addressed by the CEF.

As you say, an unusually large discount in a historically good fund may offer a buying opportunity, but that becomes a timing issue, because the discount could get  even larger as the market falls farther.  I doubt any of us have a good record of picking market  bottoms.

Several of the CEF I follow have NAVs which are beginning to rise even though the market price has not. Discounts and distribution rates are at all time highs, and I have begun to add to positions in these funds (ETG being a great example), understanding that my timing may be premature.  The real criterion is whether the portfolio is positioned for improvement, a fundmental concern which requires DD beyond current discounts and yields.  I hope others here will contribute to illuminating  this important phenomenon of CEF.  Best wishes

Re: Why are these Funds Down so Much??
09-13-2008, 10:11 AM | Post #2561280
Hide

I hear what you're saying Dwight. I have 4 CEF's in my portfolio....The bond (PTY), two REIT's (RLF,IGR) and a global ETF. (ETG) Now the first three have been trading as I feel they should....always pretty close to the NAV give or take a little. Just recently PTY has moved to about a 10 percent premium.

To relate to your post I cannot figure out why ETG now has almost a 20 percent discount! This has been a fantastic fund for me...Yielding 10 percent or so and all the income from it (and ETO I believe) is derived from investment income. That means it isn't "eating itself up".   I have bought more these past few weeks despite the NAV decline. I just love the thought of buying my assets at a discount....a near 20 % discount! ETG raised it's dividend over a year ago and despite these tough times and with the lower costs of borrowing I am hoping that Eaton Vance can bump it up before years end.

Mariner....