Closed End Funds

I can recall in 2004, 2005 and maybe even in 2006 seeing many a closed end fund being launched with a celebratory bell ringing at the NYSE. Lately, not so much, if at all.

There could be several reasons for this. The ETF/ETN format has become more popular, although not always superior. There was really a deluge, especially covered call funds, of new listings--so a lot of new supply. Lastly is that panic in the market caused an over reaction in the market prices relative to the NAVs, which by the way is a common reaction in times of turmoil. I have repeatedly referred to June/July 2003 as an example of what can go wrong with CEFs and I think the last few months are another example.

CEF are simply a tool, they have strengths and weaknesses and the big weakness is that they do over react to market events and often end up disappointing people looking for safe havens.

I have several CEFs in my ownership universe, one has held up pretty well, a couple have been fair but not great and a one has been hit hard.

That a fund is down at a time that is bad for CEFs is not a bad thing in an of itself but clearly a bad asset allocation decision, IE owning too many of them, is a bad thing.

I wrote countless posts and articles about call writing funds over the last 3 1/2 years as I buy into the concept but in just about every post on this topic (I am hedging a bit here because I am pretty sure I did this every time but can't be certain) I urged moderation, no more than 3-4% of the total. Most of them went down a lot and some of them are working their way back up faster than others. From where I sit nothing has changed if the exposure was moderate which it is in my case.

While many different types of CEFs have faltered there have obviously been other things like commodities, ag and currencies that have generally worked to offset, or maybe more than offset any decline from a CEF.

One contrarian thought that I am unlikely to pursue is whether or not the lack of new listings and the poor market action makes this a good time to buy CEFs. This is not my type of trade because I don't think I would be very good at gaming the narrowing of a fund's discount and I look at CEFs for very specific exposure as opposed the broad nature the question is framed.