BSD - for all you CEF traders out there

Discussion in 'Stocks' started by drsteph, Oct 12, 2009.

  1. Well, its that time of year again and I’m starting to look at the CEF’s (closed end funds) again.
    Last year in the midst of the credit crisis, there was a complete meltdown in levered CEF’s because of the failure of the ARPS system which many levered bond CEF’s depend upon to goose their yields (and management fees). Combined with liquidity issues, and the rumors of hedge fund selling to raise cash for redemptions, these CEF’s took a historical dump and were trading at discounts of approximately 30-40% of NAV (but realistically who knew where NAV was then?).
    Take BSD for example. Sold off on 10/10/08. Steadily the discount has narrowed and the fund has returned to a more reasonable 4% discount over time with rising NAV and rising distributions. Still levered municipals.
    So, what do you know, exactly one year later we have a big selloff in BSD – down 5% at the bottom for the day (presumably for tax purposes). What a surprise. Yes, we had a big move in the 30 yr the other day but that wasn’t really unexpected. I think its folks getting out of a trade they made a killing in – I was considering doing the same. Remember, these CEF’s are relatively illiquid. Volume today 5X average volume last 3 mos.
    Chart enclosed. As of Friday was at 6.7% non-taxable yield. You make up your own mind.

    Full Disclosure: Long BSD, NPI, NAD

    Above discussion is for informational purposes only and is not a reccomendation to buy or sell any security. I do not hold myself out as a financial professional and you are advised to consult your financial, legal, and tax advisors for specifics pertaining to your individual trading situation. DYODD. Your mileage may vary.
     
  2. forgot chart. Sorry!