This chart is from the info page for the First Trust Aberdeen Emerging Opportunity Fund (FEO). This is a fairly new CEF that invests in some combination of emerging market stocks and bonds.There is no information about holdings on the page (or at least I couldn't find any). The point of this post is not about the fund, but the action on the chart.
It captures the premium that closed end funds have when they are issued and the inevitable erosion of that premium in the subsequent weeks and months.
This neither makes CEFs good or bad but is simply one of the mechanics of the product.
On a related note a reader asked what I think about CEFs that use leverage. That's a very broad question. One leveraged fund may be very skilled at knowing when to increase or decrease leverage while another fund may have no skill or make no effort in this regard.
Leverage obviously increases risk. I am not a huge fan but throwing a well run leveraged fund into the mix has its place. The thing to focus in is how the fund uses leverage, how much leverage the fund uses and if you own several leveraged funds, how exposed you are to that leverage.
Too many people don't learn how leveraged they are in these until it is too late.
1 comments:
What then happens to the discounted value? Does that then become the norm? From ignorance, cefs baffle me, but would like to learn more since I see them as a hybrid etf. Easier than oefs to get in and out of and can offer special niche roles.
OT:
May be kind of fun to have readers submit a KISS etf portfolio for bragging rights, done per quarter to allow for adjustments. Might reveal just how hard it is to beat yourself, since we are the market.
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