‘Tis the Season: Shopping for YE Opportunities in Closed-End Funds
When it comes to investing in closed-end funds, a comprehensive understanding of the inefficiencies of the market may lead to profitable results. Yet spotting attractive trading opportunities involves more than just looking for the widest discount to net asset value (NAV); understanding why a fund sports a particular premium/discount valuation is much more telling than the raw data itself.
At Thomas J. Herzfeld Advisors, Inc., one of our best-known proprietary trading strategies centers on year-end trading activity. Pressures on share prices in the fourth calendar quarter have historically tended to provide favorable investment opportunities, while the lifting of those pressures at the beginning of the calendar year may present profitable exit points.
Fourth quarter volatility has to do with tax planning. Investors typically look at their net realized gains coming into year-end, and may seek to reduce potential tax consequences by realizing offsetting losses.
Funds targeted for disposal tend to be the poor performers, and recent sector downturns mean that selling pressure is expected to be concentrated in a few hard-hit areas.
We expect these three themes present opportunities for closed-end funds at year-end:
- Energy Independence, with a Payout – MLP Funds
- Look at the Losers – Senior Loan Funds
- Municipal Fund Year-End Trends – Tax-Exempt Muni Bond Funds
To read more about these timely themes and related action items, click here to download the special commentary, “Herzfeld’s Outlook: Seasonal Factors Provide Opportunities in Closed-End Funds,” which features a handy guide to understanding closed-end fund discounts.