Closed-end funds are considered to be cheap when the market prices of their shares trade at a discount to their NAVs. Hence investors looking to add some of this asset type to their portfolio may want to pick them up when they trade at a discount as opposed to a premium.
From a recent Journal article on closed-end funds:
“The “closed end” label reflects the fact that these funds don’t continually issue new shares, as conventional open-end funds do. Among the key complexities to understand: Share prices often vary from the value of the underlying holdings, and many funds use leverage, which can affect both prices and income payments.
There are about 650 closed-end funds on the stock market today, with about $200 billion in assets. They range from multibillion-dollar leviathans to $30 million minnows.
More than 400 specialize in bonds. The rest cover the waterfront of investment opportunities. Do you want to invest in post-Castro Cuba? Herzfeld Caribbean Basin is set up to do just that (and generally gets a pop when the health of the Castro brothers leads the news in Miami). Fancy betting that the luck of the Irish will turn? Try the New Ireland Fund. Are you interested in Australian bonds? Try Aberdeen Asia-Pacific Income. (Don’t laugh: In the past 10 years that fund has quadrupled investors’ money. How has your portfolio done?)”
In this post lets take a quick look at five country-specific closed-end emerging market funds.
1. Thai Fund (TTF): This fund aims to achieve long-term capital appreciation by investing inequities of companies in Thailand. The fund has an asset base of $244 M. Financials make up about 30% of the portfolio. Currently the fund is trading at a 15% discount to the NAV. YTD the fund is about 44% based on market returns. The 5-year market return is about 12%.Â The expense ratio is on the high side at 1.77%. From an investment perspective Thailand has high political risks. However many Thai firms pay high dividends and the private consumption of goods and services is growing. Hence among emerging markets, Thailand can be a destination for high-risk seeking investors.
Â 2. Turkish Investment Fund (TKF):Â Financials account for about 40%Â the fund with Turkiye Garanti Bank alone having a 19% allocation.Â The total net assets of the fund is $150M and the expense ratio is 1.4%. YTD the fund’s share price is up 33%. Turkey’s financial system remained relatively unscathed during the financial crisis and the country’s economy will gain a big boost when Turkey gains entry into the European Union.
Â 3. Malaysia Fund (MAY): Similar to the Turkish fund above, Financials are the major holding in this fund. YTD the fund is up 43%. With this fund, investors can gain exposure to the some of the very conservative and strong Malaysian banks, rubber plantation companies and Genting, one of the top Malaysian companies with interests in casino operations among others. Currently the fund is trading at a 12% discount.
Â 4. Mexico Fund (MXF): The top three sectors in the fund are Telecom, Consumer Services and Basic Materials. Financials make up just 7% of the holdings. America Movil and Wal-Mart de Mexico are the top two holdings in the fund. YTD the share price has grown by 30% and the expense ratio is 1.70%.Â The fund has an asset base of $395M. Despite the ongoing violence due to drug lords, Mexico remains an attractive market for investment. However the Mexican economy is heavily dependent on the U.S. economy.
5. Taiwan Fund (TWN):Â This fund has $345 in assets and the expense ratio is 1.60%. Since Taiwan is heavily focused on hi-tech exports, technology accounts for more than one-fourth of the holdings. YTD the fund is up about 20% and the fund is now trading at a discount of 8%.