A few days ago I wrote about the buywrite ETN (BWV) for RealMoney. My initial reaction is positive but I do plan to give a couple of months before I make a final decision about buying it. If it can track the CBOE BuyWrite Index (^BXM), which I can't be certain of yet, I will probably buy it.
The chart compares the BuyWrite index with the market price and the NAV for the Madison Claymore Covered Call Fund (MCN & XMCNX) which is a fund I owned across the board and a name I still have for one or two clients.
The charts of MCN and XMCNX are distorted due to its large dividend but even factoring the distortion BXM looks to be less volatile on a short term basis.
If I end up buying BWX I can envision allocating 2% to it and pairing back the call writing CEF I use now to 2% for a total of 4% for some clients.
Relative to the way I allocate to these things 4% might seem a little high but for now my take is that the CEFs, being actively managed, are riskier than an indexed product. There is no attempt to chase yield, no matter what the at the money call is trading for that is what is sold, period.
One item about BWV to point out is that it will not pay a dividend. According to a phone call to Barclays last week, any income derived within the fund will accrue to the NAV.
To be clear BWV, IMO, needs to prove it can track the index.
An unrelated item; yesterday during the NCAA Lacrosse D-1 final commentator Quint Kessenich said that if lacrosse was a stock Cramer would say "buy."
11 comments:
Roger:
I notice that some portfolio mangers invest in 'international fixed income'. Would you be kind enough to explain the rational for this? Is it a combination of:
1. Possible higher interest rate overseas?
2. Possibly dollar depreciation against the foreign currnecy?
Thanks for your time.
Stranger
Is it only time that will tell if this will match the index? A more interesting chart is if you put the BWX against ^GSPC. It really looks like the S&P without the volatility. Definitely seems to be a buy, but if it doesn't match the index, it's a waste of time.
Roger,
Is there any way you know of to find a "list" of covered-call CEFs?
I'd like to look into and compare some but my usual info sources (like ETFConnect etc.) don't seem to break them out as a separate category so its a bit tough getting started. Thanks.
Roger - what sort of accounts will you place this fund in? If Barclays tax opinion is correct it belongs in a non-sheltered account.
However, if the tax treatment is not cap gain/loss upon sale, it probably is better in a sheltered account.
Thanks
i'll address the foreign fixed income question in its own post.
I don't know where to get a comprehensive list of call writing CEFs. The symbols I watch are MCN, FFA, BEP, IGD, BOE, EBI, EEF, EOI, ETB, HCE, NFJ, JPZ, JSN. There are more.
BOE and MCN are client holdings.
The BXM chart is very compelling which makes BWV very compelling but it has to prove itself.
Re the tax question; taxes are never the first criteria for investment decision for me. If I ever use an ETN and have a choice I think I would go IRA in case the IRS makes an unfavorable ruling.
When would you consider itself proven? Is this just a wait and see type thing? If so, how long?
I can't give an exact time but I would think six months might be enough time maybe less? Not 100% positive.
Roger,
I assume you meant BEO and not BOE.
No, BOE for foreign.
gotcha. Would you recommend staying away from BEO because of the leverage? I believe it is indexed against BXM.
http://tinyurl.com/2wt98z
I am sorry it has been ages since I looked at this one--I forgot about it.
In general terms leveraging a concept that has become very popular seems like a big risk relative to what the space is supposed to offer (better put, my perception of what it is supposed to offer).
My own preference is for simple lower volatility and high yield. I want this to be as simple as I can make it.
Might be right for you but of course I have no idea, I can just give you my take on what I would or would not do.
I think it might make more sense to add risk from a segment that is supposed to be risky?
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