2025. Michael Joseph. IW$ Press
He also warns that investing in a CEF within the hope that an activist investor will step in and shut the gap between net asset value and market price is “risky” and “speculative.” What’s more, it’s “irrational” to purchase a CEF when it’s first offered, says Stansberry Asset Management’s deputy chief investment officer. He also points out that several leveraged municipal bond CEFs had their valuations cut almost in half when the Fed aggressively raised rates of interest in 2022.
By dispelling expectations of easy money, the creator of this 89-page book corrects any misconceptions that could be created by its title. That phrase also appears within the subheading of a piece discussing how Warren Buffett and Charlie Munger’s purchase of 20 percent of Source Capital’s shares after the market downturn of 1969 to 1970 drove the CEF nearly 50 percent below the worth of its underlying assets.
Buffett and Munger ultimately doubled their money, but as Joseph notes in an understatement in regards to the discounts to net asset value, they’re “not always as high as 50%.” To higher illustrate the true odds, he cites research showing that the very best CEF strategy is to purchase at a 20 percent discount, with the goal of selling when the discount drops to fifteen percent.
is written to be accessible to non-professional investors, but provides information and insights that will profit professionals who are usually not yet intimately aware of CEFs. Joseph summarizes the extensive literature on what scholars consider to be the mystery of why a CEF would ever trade at lower than the worth of its holdings. He discusses the relatively recent emergence of CEFs with fixed end dates. This structure is meant to be certain that holders can redeem the NAV at a time known prematurely, but Joseph points out that termination dates “can often be extended for various reasons.” He also informs investors about free screening sites that may assist in CEF selection. Also helpful are his warnings about funds whose names don’t accurately describe their actual holdings, in addition to the misleading payout ratios presented in some CEF fact sheets.
As for the book’s subtitle, Joseph points to several studies which have found higher returns for CEFs. However, readers hoping for a up to date, certified and index-beating management track record based solely on CEFs will probably be upset. You’ll must accept foreword creator Rich Bello of Blue Ridge Capital that his company has “earned great returns” and “invested in more than a few CEFs.”
However, many asset managers agree that closed-end funds can play a constructive role in investment portfolios. One essential application is diversification inside an income portfolio that also includes assets equivalent to bonds, preferred stocks, and REITs. CEFs, which increase their distributions over time, help income investors keep pace with inflation despite significant allocations to fixed income. Investors pursuing such a technique will profit greatly from Michael Joseph’s balanced presentation of the advantages and pitfalls of CEFs.
