I can't imagine this will be different than the myriad of these funds that already exist. Now Merrill has thrown its hat in the ring, unless this is a second fund from Merrill? There are so many of these now I just don't remember.
I will say I have been very pleased with the CEF from that category that I own for clients and personally, MCN. The original thesis, which I have had to defend several times in the comments of this site, was that these funds will move less that equities in both directions and be less interest sensitive than bond funds. That is exactly how it has worked out since I bought it. It is up about a $1 and I have taken in three, I believe, dividends since I bought last fall.
A lot of the negative comments about these funds have been along the lines that they will lag in an up market and get killed in a down market.
I can't see where this does worse than the market in a nasty correction. Obviously on a given day anything can happen. 8% annually seems like a legitimate cushion against a decline.
As for lagging an up market? Yes I know, I write this everytime I mention it.
As a look to build a portfolio I want to own some things that will move more than the market and some that move less than the market, these types of funds move less than the market and that is exactly what I want from this one, out of many, holding.
The balance between expected out performers and expected laggards would speak to my expectations for the market.
By the way this is not a call for anyone to buy MCN. It now has close to a 7% premium to NAV. As I said earlier this week, a CEF I own growing to have a big (ish) premium is not an automatic sell.
5 comments:
If there is a correction, won't that premium turn into a discount? And so in addition to the market losses, you could face up to 20% in premium and then discount losses. In fact it's a given this will sell at least at a 10% discount to NAV considering that every closed end fund does.
what you have written absolutely COULD happen.
but your comment seems to imply a certainty that I don't believe can be known. for all anyone knows both the price and NAV might fall the same amount in a correction. Not sure where your 20% comes from. BTW not every CEF trades at a 10% discount.
MCN looks like a great short. Little upside risk and a potential huge gain from market decline plus premium evaporation. I tried to short it but they wouldn't let me. The existence of the premium negates the idea that it will go down less than the market during a decline. MCN is a good vehicle for speculation on too high volatility premiums, not for a buy and hold investor.
you want to short it? it has a 8% yield. Even if you are right you have a big bogey to overcome just to breakeven.
No different than buying puts for protection, except at a discount because of the large premium. And you're selling the puts.
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