CEFs at large discounts to NAV

Discussion in 'Trading' started by elite74, Jul 8, 2013.

  1. elite74


    I was wondering why certain CEFs trade at such large discounts to NAV.

    For example, BIF trades at a 22% discount to NAV.
    It's total market cap is 200M. It is mostly US equities 1/3 of which is BRK-A.

    1) Why aren't arbitragers stepping in and buying the fund and shorting the holdings?


    2) why isn't someone buying all the shares and closing out the CEF at a 20% profit?
  2. expenses and poor mgmt
  3. elite74


    it is 20% discount and expense ratio is 3%.

    management seems ok, outperformed the SPX by 20% over the last 10 years ?
  4. 3% expenses out of 10% expected returns equals 30% discount. some of that is mitigated by cheap leverage (ie if 25% leverage generates extra 1.5% return (including cost of leverage)) but not enough.
  5. same reason why one class of stock trades at a lower price, when it has more voting rights.

    folks don't like it.