I'm curious Coach, How much better have you done with this formula than say using 3 month treasuries, which have next to no risk?
About 10 - 12% returns on CEF portfolio compared to 4% and under for t-bills. I am comparing the amount of money I put in CEFs v. the amount I would put in T-bills, you have to remember that. So you cannot compare 25% of your portfolio in CEFs v. 100% in t-bills. The effect on your total portfolio depends on how much of it is in CEFs. I like looking for the extra returns and selecting CEFs based on their underlying portfolios. I am putting idle cash and margin to work at higher returns then if I put the same amount in t-bills. For people who want to avoid the extra work and research then tiered maturitiy T-bills are a great substitute. I enjoy the research into CEFs so the extra returns is worth it.
Don't worry too much about premium/discount. Remember these funds trade this way for a reason and will likely continue to do so. Stop loss on a fund? Now I've heard it all. I would look at some good income trusts and diversify accross those. Best of luck to you.
A CEF trades like a stock so a stop loss helps preserve the income stream so drops in share price do not eat it all up. The focus on the discount is because a fund that is doing well wil have the NAV move out ahead of the share price many times and thus the discount. The reason I study the annual or quarterly reports is to make sure there is not a negative reason for the discount. But many funds trade at a discount for the fact that the NAV moves quicker than the shares since CEFs are not as heavily followed or traded. The discount lets you get in with a better yield and if it is a good fund that discount will narrow adding some share appreciation on top of the income. But like I said, it requires the additional study of the fund. Phil
An edge but a conservative one really. My approach is for income at 7 - 10% a year yield on invested capital since this part of my portfolio backs up my credit spread trading and other option positions (i.e., I am not shooting for 7-10% on my portfolio, just on the capital I place in CEFS which can be up to 70% at times). CEFs are very overlooked in the trading world (mutual funds and index ETFs still get all the glamour) and one can use them to generate diversified monthly income at worthwhile yields. They require the same due diligence in stock selection but quite worth it in my opinion. I was hoping this would remain as a journal but the powers that be took it out. I doub there is enough interest to keep it going here so I will let it die its own slow death. Anyone interested in discussing CEFs, just PM and we can chat there. Thanks!
what does "it could be a good time to look at a few of the ones that have gone to a big discount to nav." "discount to nav" phrase mean? I know what discount (bonds) are, but don't know the lingo of "nav" I'm a big (corporate) bond fellow myself.. Have you looked at Interactive Brokers corporate bond margin details? 10% cash with 90% on margin is pretty fierce-- haven't branched out into what you are talking about here yet.. so pretty interested in the thread! I can google CEF's but do you have some "choice" links I can do some research ? cheers, k.
He already posted one link where you can get some information although it was spelled wrong: www.etfconnect.com
closed end funds will at times sell for less(or more) than the value of the assets in their fund. when they sell for less than the bonds or whatever asset they hold is worth they are said to be at a discount to nav( net asset value). sometimes that can be a good time to buy them hoping the market will correct the disparity and bring the value into line. here is an example of a cef that i own. it is currently 9.7% undervalued to its nav. http://etfconnect.com/select/fundPages/gen.asp?MFID=3730