Tag Archives: seeking

Closed-End Funds Are A Pocket Of Value In An Expensive Market

The third-quarter market correction came like a kick to the teeth. But if you blinked, you might have missed it. From August 17 to August 25 – a span of a little less than a week – the S&P 500 dropped a quick 11%. But by the middle of October, the market had already recovered more than half of the late-summer swoon. In certain sectors – like energy – the August sell-off created the sort of pricing that makes value investors like me salivate. I scooped up additional shares of Enterprise Products Partners (NYSE: EPD ), Energy Transfer Equity (NYSE: ETE ) and Teekay Corp. (NYSE: TK ), among others, in my Dividend Growth portfolio. Pricing is still very favorable in this sector, and I expect more gains to come. But in the broader market, the correction – while violent and jarring – was not deep enough to really give us the bargains I had hoped for. U.S. stocks are still very pricey, trading at a cyclically-adjusted price/earnings ratio of 25 , implying extremely lackluster returns going forward. So, mainstream stocks are a bad bet at today’s prices. But there are bargains to be found for those willing to look. One corner of the market that is dirt-cheap is closed-end bond funds (“CEFs”). This is a niche market that is mostly ignored by institutional investors, and even seems a little anachronistic in the age of index-tracking ETFs. But their quirkiness is precisely what makes them appealing. Unlike mutual funds, which are priced daily at NAV, or ETF shares, which rarely deviate too far from their NAV, CEFs are often priced at wild discounts and premiums to the values of their respective portfolios. When a CEF is priced at premium to its book value, you generally don’t want to own it. Why would you pay $1.10 for a dollar’s worth of assets? An enterprising investor could look at the fund’s holdings and replicate them by buying the same bonds on the open market, without paying management fees. But when a CEF trades at a discount… that’s where it gets interesting. In several high-quality CEFs, we can essentially pick up dollars for 90 cents or less. Fund Ticker Yield Current Prem./Disc. to NAV 52-Week High Prem./Disc. to NAV 52-Week Low Prem./Disc. to NAV Cohen & Steers Select Preferred & Income Fund Inc. PSF 8.72% (11.12%) (2.04%) (11.12%) Cohen & Steers REIT & Preferred Income Fund RNP 8.38% (16.66%) (9.50%) (17.83%) Eaton Vance Limited Duration Income Fund EVV 9.52% (14.70%) (8.70%) (16.03%) Cohen & Steers Limited Duration Preferred & Income Fund LDP 8.32% (10.18%) (5.86%) (11.83%) Source: CEFConnect.com In the Dividend Growth portfolio, I currently own shares of the Cohen & Steers Select Preferred and Income Fund , the Cohen & Steers REIT & Preferred Fund , the Eaton Vance Limited Duration Income Fund and the Cohen & Steers Limited Duration Preferred & Income Fund . All are trading at discounts to book value of 10-17% – some of the deepest discounts since the 2008 meltdown – and all pay very competitive dividends of 8-10%. Between the dividends and a closing of the discounts to more “normal” levels, I expect to see total returns of 15-20% over the next 12-18 months. In an overpriced market, that’s not too shabby. Disclosures: Currently long EPD, ETE, TK, PSF, EVV, RNP, LDP. This article first appeared on Sizemore Insights as Closed-End Funds Are a Pocket of Value in an Expensive Market . Disclaimer: This article is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results. Original Post

Silver Mining ETFs Head To Head: SLVP Vs. SIL

Precious metals are back to business now owing to the recent spate of disappointing economic data, mainly from the U.S. and China. After the weak September U.S. job data, the most recent inflation data from China and retail sales and producer prices data from the U.S. jumpstarted the rally in precious metal prices. Consumer price index (“CPI”) in China rose 1.6% year over year in September, lower than the August gain of 2%. The producer price index (“PPI”) declined 5.9% in the same month after falling by the same magnitude in the previous month. With this, it recorded its 43rd straight month of decline. On the other hand, U.S. retail sales gain of 0.1% in September was lower than expected (0.2%) while producer price index was the lowest since January at 0.5% in the same month, after remaining unchanged in August. Further, International Energy Agency (“IEA”) recently predicted that the global oil market will remain oversupplied in 2016 due to the surge in Iranian oil supply following a nuclear deal and weak global demand. This will continue to put pressure on oil prices and result in subdued inflation across the world due to lower oil consumption bill. All these data dimmed the prospect of an interest rate hike by the Fed, at least in 2015, leading people to flock toward non-yielding assets such as gold and silver. The chance of a delay in rate hike also led the U.S. dollar to tumble to its lowest level since late August against a basket of major currencies. This has further strengthened the demand for gold and silver in the global market as a weaker dollar makes them cheaper for holders of other currencies. As a result, both gold and silver hit their three-and-a-half-month highs recently. Amid the bullish price trend for silver, it would be intriguing to look at two top performing silver mining ETFs and their key differences. iShares MSCI Global Silver Miners (NYSEARCA: SLVP ) This ETF tracks the price and yield performance of the MSCI ACWI Select Silver Miners Investable Market Index, which provides exposure to companies primarily engaged in the business of silver mining in both developed and emerging markets. The fund holds 30 stocks in its basket. Canadian firms dominate the fund’s portfolio with a 59.08% share, followed by U.K. (12.44%) and the U.S. (9.99%). Silver Wheaton Corp. (NYSE: SLW ), Fresnillo Plc ( OTCPK:FNLPF ) and Industrias Peñoles ( OTCPK:IPOAF ) occupy the top three positions in the basket with shares of 21.96%, 10.02% and 8.04%, respectively. The top 10 holdings comprise 71.42% of the fund. Notably, the fund has some exposure to the broader precious metals and minerals sector (29.18%) and gold (10.26%), apart from silver (60.49%). The product has amassed over $13.5 billion in its asset base and trades in a paltry volume of around 15,000 shares a day. It charges investors 39 bps in fees per year and has a dividend yield of 2.87% (as of October 14, 2015). The fund returned 23.6% in the past one month. Global X Silver Miners ETF (NYSEARCA: SIL ) This ETF follows the price and yield performance of the Solactive Global Silver Miners Index, measuring the performance of the silver mining industry. The fund holds 24 stocks in its basket. Industrias Penoles Cp, Silver Wheaton Corp. and Silver Standard Resources Inc. (NASDAQ: SSRI ) are the top three holdings of the fund with allocations of 11.19%, 10.11% and 7.52%, respectively. The top 10 holdings account for 65.76% of the fund’s assets. The ETF is also highly focused on Canadian firms with a 57.96% share, followed by the U.S. (12.34%) and Mexico (11.15%). SIL has gathered about $154 million in assets and trades in an average volume of more than 238,000 shares. It charges 65 bps in fees from investors per year and offers a dividend yield of only 0.09%. The product was up 25.4% over the last one month. Exposure: In terms of company and country exposures, both funds stand on the same foot. However, SLVP has an edge over SIL as the former is also exposed to gold and the broader precious metal and minerals mining sector. Concentration: SLVP holds more securities than SIL and is more concentrated in its top 10 holdings. Volume: The higher volume of SIL compared to SLVP suggests that the former is much more liquid and its bid/ask spread should be relatively tighter than the other. Cost and Yield: SLVP is cheaper than SIL and has a much higher dividend yield. Therefore, investors keen or riding the bullish trend in silver prices should take note of these points before choosing between the two popular silver mining ETFs. Original Post

Is It Time To Hedge Your Stock Portfolio?

Recent weeks have seen stocks, credit and even emerging markets start to recover. Unfortunately, the gains haven’t been driven by signs of economic improvement, firming inflation or rising earnings . Instead, investors are once again taking solace in low rates and benign monetary conditions , which can, and probably will, persist for the remainder of the year. As inflation expectations continue to fall, a 2015 rate hike by the Federal Reserve (Fed) looks increasingly unlikely; even the odds of an early 2016 hike appear to be fading. However, as I write in my new weekly commentary, ” With Stocks on Shaky Ground, a Promising Ballast in Bonds ,” this trend can only take the market so far. The hard truth is that although rising valuations can continue a while longer, particularly if the European Central Bank or Bank of Japan add to their own quantitative easing programs , valuations, especially those of U.S. equities, are already high. Since September 30, the trailing price-to-earnings ratio on the S&P 500 has risen by 10 percent, and at roughly 18 times trailing earnings, U.S. multiples are now back to the same level where the market peaked this summer, according to Bloomberg data. The high valuations come at the same time as disappointing company earnings – a trend evident in the admittedly still early third-quarter earnings season. With revenue growth sluggish, earnings growth will be even tougher to come by if U.S. margins start to descend from their lofty highs. While U.S. stocks can rise further this year, in the absence of earnings growth, the equities are at best stuck and at worst vulnerable to any unexpected growth shock . So, where does this leave investors? Rather than either exit the U.S. market (and potentially miss out on gains) or try to time it, investors with equity-centric portfolios may want to consider a particular hedge: longer-duration bonds. While I don’t see much value in long-dated bonds, in recent weeks they have reasserted their historical role as an equity hedge. Indeed, the 90-day correlation between the S&P 500 and the 10-year Treasury is once again significantly negative, as data accessible via Bloomberg show. As investor fears have gravitated back to the economy, and away from an unfounded fear of the Fed, it’s likely that the correlation will stay negative for the foreseeable future. The implication is that long-term bonds, which may not offer much income, can help provide an effective hedge in equity-heavy portfolios. As such, for investors looking for some longer-term ballast in their portfolios, longer-duration bonds are worth considering. This post originally appeared on the BlackRock Blog.