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Old 09-12-2019, 02:42 PM
 
Location: West Los Angeles
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I'm looking at some closed-end mutuals I inherited in a trust, and every single one of them has a sharp fall-off in value right after they're first offered. What's going on here, and why do people invest in these things initially if it takes like 30 years just to break even?
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Old 09-12-2019, 02:45 PM
 
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Quote:
Originally Posted by Exitus Acta Probat View Post
I'm looking at some closed-end mutuals I inherited in a trust, and every single one of them has a sharp fall-off in value right after they're first offered. What's going on here, and why do people invest in these things initially if it takes like 30 years just to break even?
Without The specific funds no one can tell you a thing about what you have . Not all closed end funds are bad
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Old 09-12-2019, 03:20 PM
 
Location: West Los Angeles
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Originally Posted by mathjak107 View Post
Without The specific funds no one can tell you a thing about what you have . Not all closed end funds are bad
Here's one -- my aunt bought in at $20 a share:

https://seekingalpha.com/symbol/EOD?s=eod
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Old 09-12-2019, 03:28 PM
 
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Quote:
Originally Posted by Exitus Acta Probat View Post
Here's one -- my aunt bought in at $20 a share:

https://seekingalpha.com/symbol/EOD?s=eod
It has nothing to do with being a closed end fund ... only 60% of the fund is in stocks and half of the stock budget is in foreign stocks ...foreign stocks have sucked for a long time now .
It was a poor choice in what markets to invest in , not the type of fund used.

It returned 4.71% as an average the last 10 years ..for comparison fidelity balanced fund returned 9.84 but was only 5% foreign
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Old 09-12-2019, 03:56 PM
 
1,217 posts, read 560,131 times
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Quote:
Originally Posted by Exitus Acta Probat View Post
I'm looking at some closed-end mutuals I inherited in a trust, and every single one of them has a sharp fall-off in value right after they're first offered. What's going on here, and why do people invest in these things initially if it takes like 30 years just to break even?
some times it's a result of paying placement fees/commissions to those that raised the money for the fund or dilution if there are "founder shares" existing at inception.
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Old 09-12-2019, 04:00 PM
 
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They also sell at a premium or discount to net asset value .. buy when it is hot and sell when the fund is cold and the difference can be substantial
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Old 09-12-2019, 04:05 PM
 
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So a few things:

hat particular fund you linked had a 4.5% front end load. The sales person loved and really screwed her. I'd be curious if any have an outrageous back end load.

Closed end funds don't trade at NAV. NAV is the value of the funds holdings (Net Asset Value). Closed end funds trade at their own value based on supply and demand of the shares, similar to a stock. So you have two parts of the equations, the value of what the fund holds and the value of the shares. They aren't tied at all, you can have the fund trade well below NAV or above, it is all about the demand for the shares. See HPI for a CEF that trades at a premium of around 10% right now because of yield chasers.

What the fund invests in obviously matters. You can have a CEF that does well, is invested in good areas and provides good returns. That would have higher demand than a fund that invests in areas that are in decline or not hot at the moment. This will impact not only the returns you get from the fund (NAV) but also the share price since people will demand good returns and thus bid up the price for CEF which provide them over others that do not.

All things equal, I prefer open end funds. There is enough risk in the market without having to worry about supply and demand mechanics on a relatively thinly traded security impacting your returns. All it takes is some selling action and you can see serious declines, even if the underlying investments are seeing solid returns. In a perfect world that should equalize over time but reality is not perfect. I am not saying I would avoid all CEFs, there are some decent options, there is little reason to seek them out unless it is something really special and not available elsewhere.

Now that isn't the whole problem. That fund is trading at 6.5% discount to NAV. So part of the problem but the fact that it has gone down so much is related to what it invested in, not just that it was CEF, had a load etc.. It was a crap fund for a lot of reasons.
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Old 09-12-2019, 04:16 PM
 
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Atop of what's already been said, that fund is listed as having a 0.6/share dividend rate (10.8% at current per-share price). If there's paltry underlying growth, and high dividend, then the per-share price has to drop accordingly. Historical data only shows share-price, not just for this fund, but for anything... any stock, or any index (with a few exceptions, like the German DAX). So, cumulative return could be (slightly) positive, while share-price appears to drift down-down-down over a decade.
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Old 09-12-2019, 04:37 PM
 
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Originally Posted by ohio_peasant View Post
Atop of what's already been said, that fund is listed as having a 0.6/share dividend rate (10.8% at current per-share price). If there's paltry underlying growth, and high dividend, then the per-share price has to drop accordingly. Historical data only shows share-price, not just for this fund, but for anything... any stock, or any index (with a few exceptions, like the German DAX). So, cumulative return could be (slightly) positive, while share-price appears to drift down-down-down over a decade.
This is what I try to convey time after time ....you canít get dividends without seeing at least as much in appreciation or the share price gets driven lower and lower .....you know the deal ,,,,they tell you they donít care about the share price or appreciation, they are getting a dividend.
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Old 09-13-2019, 07:15 AM
 
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Quote:
Originally Posted by Exitus Acta Probat View Post
I'm looking at some closed-end mutuals I inherited in a trust, and every single one of them has a sharp fall-off in value right after they're first offered. What's going on here, and why do people invest in these things initially if it takes like 30 years just to break even?
Many CEFs are income funds. They are not intended to gain in share value. The purpose of owning them is for monthly income. The owner is not that concerned about whether the share price goes down a bit or up a bit.

If a fund is volatile, it usually is volatile both ways. It goes down a lot, and goes up a lot. You have to look at the long term trailing returns, which includes the yield you received.

There can be regular, open-end funds that behave the same way. How a fund behaves in any economic environment depends on the investments it holds.

There's no free ride. When a fund gives an over 10% yield, as EOD does, there's a tradeoff for that, usually. However, it looks like EOD was purchased when the fund was first started, in 2007. At the beg. of the Great Recession. I would never buy a fund that hasn't been in existence for at least five years. So she paid top dollar for it in 2007, and it decline to 1/4th of that price. Part of the reason may be that it's Wells Fargo, whose name is sullied now.

By contrast, I own PTY. In 2007 its price was $15-$17. Its current price is now a little over $18. Not much more, but its 10 year trailing return (which includes the income it gave to investors) is 17.23%. (EOD's 10 year trailing return is 4.75%)

Morningstar.com rates EOD one star (the worst), and rates PTY five star (the best).

Your question is like asking "GE's price has gone down so much over the last 10 years, why would anyone buy stocks, since they go down so much?" The answer is: not all stocks behave like GE; there are reasons that stock has gone down. One stock is not like another stock, and one CEF is not like another CEF. BUT CEFs and other holdings that give off high yield are held for income, not increase in share value. Like a bond (although CEFs are not = bonds). (GE's stock in 2007 was generally around $39 or $40; it's now $9.25.)

(Having said all that, I will add that I did notice that CEFs tend to lose share value over time, so I research that aspect of a fund before buying it. And I may not want to hold it for as long as I'd hold, say, a general market index fund. I buy CEFs for the income, but I don't want to lose a lot when I sell it.)

Last edited by bpollen; 09-13-2019 at 07:59 AM..
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