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Jason Knapp

Great Buying Opportunities Abound in Closed-End Funds...Special Situation Investing News - 9/2/2015

The recent market turmoil has created interesting buying opportunities in a seldom talked-about type of investment, Closed-End Funds or CEFs for short.  For those of you who are not familiar with CEFs, they are a group of stocks or bonds that reside under one ticker like a mutual fund, but they trade constantly throughout the day, like an ETF.  Unlike regular funds where investment managers can sell new shares to raise more money to invest, closed-end funds are a fixed pool of money with a specific number of shares.

Enough background.  Here's the interesting investment opportunity.  The recent volatility in the markets has caused many CEFs to sell off significantly more than the value of their underlying assets (which are easy to value because most of them are public companies or bonds), creating a significant discount to these funds' Net Asset Values (NAV).  Any time I can buy something that's worth a $1 for $0.90 or less I start to get interested.

According to Fitch Ratings the average CEF now trades at an astonishing 9.9% discount to its NAV.

Source: Closed-End Fund Association, Inc. (click to enlarge)

So what CEFs are cheap right now?  Here's a list of a few:

Tri-Continental Corporation $TY: 14% discount to NAV

Zweig Fund $ZF: 15% discount

BlackRock Corporate High Yield $HYT: 8% discount to NAV

Western Asset High Yield $HYI: 8% discount to NAV

ASA Gold and Precious Metals $ASA: 19% discount to NAV

Gamco Natural Resources $GNT: 11.5% discount to NAV

European Equity Fund $EEA: 12.5% discount to NAV

Swiss Helvetia Fund $SWZ: 15.5% discount to NAV

Voya Infrastructure Fund $IDE: 19.5% discount to NAV

Voya International High Dividend Equity $IID: 13.5% discount to NAV

Blackrock Municipal Investment Quality Trust $BAF: 12% discount to NAV

What's the catch?  For one, Mr. Market always seems to apply some discount to CEFs.  So don't expect a fund that trades at a 15% discount to its NAV to magically increase by 15%.  The spread between CEF share prices and their NAVs will likely eventually narrow by several percent, but likely not by the entire amount. Furthermore, if you don't hedge your exposure to a CEF that you buy because of a discount, you leave yourself vulnerable to a selloff in the overall stock market or the particular asset class that the fund invests in. This is particularly true for CEFs that use leverage, and many do.  Lastly, there's no telling how long it will take for the discount to NAV to close and the managers' fees of the CEF will begin to add up over time.

Despite these negatives, many CEFs look ripe for the picking right now.


Market turmoil kicks up opportunity in deeply discounted funds

Closed-End Funds Trading At A Discount To NAV

Average Closed-End Fund Discount Widens to Nearly 10%

And now for the rest of the Special Situation Investing News:



International Paper Spinoff Veritiv: Slow, But Improvement Nonetheless

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$CSC's spinoff and SRA are merging. Here's why that matters

Edgewell Personal Care May Be Worth Watching... Eventually

Darden Restaurants Puts Growth On The Menu With REIT Plan

Civeo: Liquidity Concerns Overblown 130%+ Upside At Current Levels. Not sure about this one. Pretty dangerous.



Del Taco Is Just Another Overpriced Restaurant Chain. $TACO Interesting to hear the other side

Investment Thesis on Videocon d2h

SPAC Weekly 8/31: Special Purpose Acquisition Corps 101


Investment Write-Ups

Coho Capital Investment Thesis on Viad

TerraForm Power: Is It Time To Buy This YieldCo?

Regarding Motors Liquidation Trust

What Is SunEdison Worth?

Chicago Bridge & Iron - Is The Market Providing Us An Opportunity At Current Levels?


Activist Investors 

Sandell Asset Management target Bob Evans Will Pursue $200 Million Sale-leaseback of Restaurant Properties

Viavi Solutions (VIAV) Stock Gains on Activist Letter

Tom Sandell now an activist in the next great platform company

Activist Investing Daily: Sandell Asset Management Targets Viav Solutions

This Week In Activism – Freeport-McMoRan, Telenav, Ethan Allen

I thought that it was wise to sell on the $ARIA rumor. Baxalta Said to Abandon Takeover Talks With Drugmaker Ariad

RDG Capital Activist Target Internap $INAP Exploring Strategic Alternatives

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Volkswagen Is Told to Shed 19.9% Stake in Dan Loeb Target Suzuki

Pleasant Lake Offers To Buy MangaChip


Merger Arb

Mylan-Perrigo Fight Destined to Be a Nasty One

Exelon Reaffirms Commitment to Buying Pepco After D.C. Rejection

M&A Stays Hot: A Look at the Numbers


Hedge Funds / Whale Watching

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20 Healthcare Stocks The Richest Hedge Fund Billionaires Are Buying And Selling Now

ValueAct up 1.6 percent in second quarter of 'difficult year'

Rosenstein's Jana Partners fund down 4.3 percent in August

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Greenlight Capital Down 14% for Year; David Einhorn Surveys Investors


Other Investing News

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Calpers, Calstrs Want Bank of America to Separate Roles of Chairman, CEO

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Hotels Fight Back Against Sites Like Expedia and Priceline

Creditors Squeeze the Last Drop Out of Oil-and-Gas Companies

Delaware Ruling May Complicate Management Buyouts



Autodata reports US car sales hit an annualized pace of 17.81 million August, crushing expectations

The bond bear that cried wolf

Bill Gross: Fed tightening now could create self-inflicted instability

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