Openings in Closed-Ends
The Morgan Stanley Global Opportunity Bond Fund has more than a few fans. The closed-end fund, which invests roughly 50% in emerging- markets debt and 50% in U.S. junk bonds, is selling at a premium to net asset value of over 50%.
Many funds, which invest in emerging markets and high-yield junk bonds, sell at a premium to net asset value because their yields are high and investors, more than ever, are craving yield.
David Tepper of San Francisco-based Tepper Capital Management, a specialist in closed-end funds, says investors could be purchasing the Global Opportunity Fund thinking that it is a true "global" bond fund.
Indeed, the Global fund has only $34 million in assets, while the Emerging Markets and High Yield funds have $229 million and $85 million, respectively. Therefore, it wouldn't take much to move the Global fund because of its small market capitalization. That said, by buying shares of Morgan Stanley's Emerging Markets Debt Fund and the High-Yield Fund, an investor can replicate Morgan's Global Opportunity Bond Fund's investment portfolio for 60% less, says Tepper.
He adds: "This is the most logical, pure arbitrage opportunity you can find, where the whole is selling for way more than the sum-of-the-parts."
Tepper suggests being long MSD and MSY, versus being short MGB. Morgan Stanley declined to comment.
I am quite certain I have placed trades for Mr. Tepper back in my days as a trader. We had an advisor named David Tepper call in to our desk regularly, if it is the same David Tepper I doubt he would remember me.
Barron's Electronic Trader column had not blogs mentioned for the second week in a row. I hope they haven't given up on us.