by billb
7. June 2009 11:30
The conventional wisdom is that closed ended funds, or CEFs provide a bit more volatile ride than open ended funds. This is usually because they can trade significantly higher or lower than the net asset value. The premium/discount of the CEF represents the value that it is above or below the net asset value or NAV. Typically, during bull markets, CEFs tend to run at a premium to NAV, during bears, a discount. At the end of last year, CEF discounts were significant across the board. I don't like to speculate on whether a discount represents value, which is one of the reasons why I don't do too much with CEFs. However, the broad based discount was too much to ignore for a 'buy low' kinda guy like me. In fact, I picked up some BEP in November and Decemeber when I felt asset prices were very depressed and add to that a decent discount to NAV on BEP which doesn't happen very often.
At the risk of monkeying around too much with long term holdings, my BEP holding has caught my eye for the same two reasons why I purchased it to begin with. Except for now I feel that equity prices are a bit rich short term and that BEP is at a high premium to NAV.
And the percentage chart, which is a filled series making it a little bit easier to visualize the premium / discount trend.
I think that making decisions to 'get out' are relatively easy. The harder question is, when do you get back in? For all of those that sold at Dow 7000, what did you do? Are you back in? Same sort of tough predicament here. It seems like a no brainer to sell part of this holding. But where would I go with it? Well, I have two ideas. Bonds or domestic small cap value. Wha? Come again? It's part of my overall asset allocation strategy. Currently I'm light bonds since I really went all in with equities over the last several months. And second, my domestic value funds are lagging. This could be a bad fund choice, perhaps, but they're even lagging foreign and financials!!
With an asset allocation plan already setup, it really starts to become clearer what to do after the sale. I don't tend to sell long term holdings much for fear of monkeying around, but I think this might be a candidate for monkeying. Will it be bonds or stocks? I'll have to sleep on that one.
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Tags:
ETFs | Markets
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