Hi Roger,
I have some of the Madison claymore covered call cef. My broker recommended it soon after it came out and I have been happy with it. I know some of your clients hold it. My broker has called me about a new CEF IPO doing covered calls on the S and P 500 from Nuveen, symbol JPG.
Somewhere, maybe on your blog, I remember reading that anyone that bought one of these at the IPOs was a damn fool (I don't think I was that harsh, but IPOs of CEFs have a premium that has nothing to do with supply and demand in the market, only paying people that sell the fund), because they typically drop to about the price that would have been paid without the commission which in this case is 4.5% ( the hidden commission on these is always very high) soon after the IPO. What is your take on this. It makes sense to me to wait a little bit after the IPO and then buy if this is the case. Have you ever noticed that they drop in NAV after the IPO? Thanks
Hope that helps.
This may speak to a common Wall Street flaw. When something is popular, investment banks create a lot of supply. Most of the call writing CEFs are me toos. A few choices in domestic is a good thing, a few choices in foreign might be good too and I am aware of one the is benchmarked like an index fund to the CBOE Buy Write Index (BXM), although that one fund has lagged the others badly, and maybe a couple of others that offer something different. That does not add up to the now 25 or so of these that exist.
Anytime you by a CEF on the IPO you are buying at a premium. The premium goes to pay your broker and the brokerage firm and so on. Usually the premium at IPO does erode and with these types of funds I would expect that to be the case (because there are so many funds like this already) (buying at a premium is not necessarily bad but as mentioned above the premium for an IPO has nothing to do with demand for the fund). There are plenty of call writing CEFs I can't imagine why, if you need to own another one (and I'm not questioning that) (I would wonder why someone needs more than one of these actually. I am a huge fan of the concept and have written about them as much as anyone on the web, maybe, but clients only need one and I only need one), it needs to be on the IPO (brokers have to get paid, there is some pressure on brokers to place new offerings) . There are plenty to choose from with no premium (PLENTY).
This may speak to a common Wall Street flaw. When something is popular, investment banks create a lot of supply. Most of the call writing CEFs are me toos. A few choices in domestic is a good thing, a few choices in foreign might be good too and I am aware of one the is benchmarked like an index fund to the CBOE Buy Write Index (BXM), although that one fund has lagged the others badly, and maybe a couple of others that offer something different. That does not add up to the now 25 or so of these that exist.
3 comments:
I renew my contention that the large and growing number of these funds are a testament to an upcoming super bull market. The willingness of the public to trade upside potential for down side protection is typically the strongest right before a big move to the upside.
As far as buying the IPO's, I believe you are right on target. Brokers love to be able to call to offer a "commission free" product when they payout is extra high.
I've held GATEX for years (probably more than a decade) and can't really find a need for one of these CEFs. Am I missing something?
with GATEX you have the typical OEF CEF structural differences. that issue matters to you or it doesn't.
Both Yahoo Finance and Scwhab have GATEX yielding 1.15%. If that is accurate you are giving up 700 basis points in yield.
In the last 12 months GATEX is outperforming MCN by about 300 basis points, but that entir lag happened this week and has a reasonable chance of reversing.
You can decide whether you are missing anything or not.
MCN is a client and personal holding.
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