You may be interested in this cut-and-paste (sorry for the poor format it's in) that was in the WSJ a few days ago and contained some analyst quotes.
The analysts don't mention (or aren't aware of) the fact that TTF and MF hold mainly local shares and NAV is calculated at local prices even though foreigners are willing to pay much higher prices (at least for TTF) as evidenced by the fact foreign class prices are much higher than local class prices on the same stocks.
"Closed-end funds that invest in Asia are trading at record
premiums compared with their net asset values -- and that's bad news for
many investors.
During the past few months, even as Asian markets plummeted, Asian
single-country closed-end funds have rocketed from discounts to sky-high
premiums to their net asset values, or NAVs. Closed-end funds, which are
listed on a public exchange (unlike their "open end" cousins, mutual funds),
issue a fixed number of shares whose price is determined by investor
demand. These shares then trade at a premium or discount to their NAV.
According to Lipper Analytical Services Inc.,
some of the premiums of Asian closed-end
vehicles are at heights unseen for more than a
decade. For instance, the two Thai
closed-end funds that Lipper tracks -- Thai Capital Fund and Thai Fund
-- are at premiums of 98.9% and 147.7% to NAV, respectively. That is
up sharply from premiums of less than 7% 12 months ago. Many
Indonesian, Philippine, South Korean and Singaporean closed-end funds
are also trading at similar hefty premiums now, Lipper calculates.
"The last time I saw such premiums was in 1987," says William Dinning,
senior country funds analyst at Merrill Lynch & Co.
But gawking aside, the premiums mean that Asian closed-end funds are no
bargain. In fact, many investors who try to play the premiums probably will
get burned. "It doesn't make sense to buy into these closed-end funds
now," says Paul Mazzilli, closed-end-funds analyst at Morgan Stanley,
Dean Witter, Discover & Co. "Neither does it make sense to hold onto
shares in such closed-end funds."
Because of the hefty premiums, investors who want to purchase shares in
the funds will have to pay top dollar for a basket of cheap assets, Mr.
Mazzilli says. Those looking to get into Thai Capital Fund with its 98.9%
premium now, for example, will have to pay $1.98 in order to purchase
assets worth just $1.
Investors who already own shares in the funds would be wise to sell now,
Mr. Mazzilli adds. The inflated premiums of many Asian funds aren't
sustainable, he contends, as most premiums traditionally diminish as soon
as a recovery takes root in Asian economies. Once the funds' premiums
decline, the investor will only be able to sell the closed-end fund's shares
for a lower price. "They'll have to suffer the consequences," Mr. Mazzilli
says.
Why Asian closed-end funds are at premiums at all is a bit of a mystery.
Since Asian markets plunged in mid-1997, many fund analysts had
expected demand for vehicles that invest in the beleaguered region to
wane. Indeed, there is little demand for Asian closed-end funds listed
offshore in Dublin or London, says Hiroshi Funaki, London-based country
funds analyst at Robert Fleming & Co. He notes most of these offshore
funds are trading at steep discounts to NAV.
But U.S.-listed closed-end funds possess an odd history of rocketing to
premiums just as their underlying market drops, Mr. Funaki notes. During
the Mexican-peso crisis in 1995, for example, Mexican closed-end funds
listed in the U.S. soared to huge premiums even as the Mexican stock
market nose-dived.
This time, several factors are conspiring to push up the premiums of Asian
closed-end funds that are listed in the U.S., fund analysts say. On one
hand, many investors who already owned shares in the Asian closed-end
funds were caught flat-footed when Asian markets took a dive, and
weren't able to sell out of the funds in time. Many of these investors are
now unwilling to sell their holdings at a loss.
At the same time, other investors in the U.S. are eager to buy into the
Asian closed-end funds now. With the completion of International
Monetary Fund bailout packages for South Korea, Indonesia and
Thailand, these investors seem convinced that Asian markets are near
bottom. To position themselves for a recovery, they are seeking to load up
on shares in Asian closed-end funds, fund analysts say.
Closed-end funds remain one of the few ways to gain exposure to certain
Asian markets as there is a dearth of open-ended Asian country funds.
While Lipper tracks four closed-end Korean funds, for instance, the
company counts just one open-ended Korean-stock mutual fund.
But fund analysts say there are alternative -- and more profitable ways --
to gain exposure to Asia. Their top suggestion: closed-end Asian regional
funds, which invest in markets across Asia rather than in just one country.
Because of their diversified nature, these vehicles tend to be less volatile
than single-country funds and more suited to regular investors, analysts
say.
What's more, Morgan Stanley's Mr. Mazzilli notes several Asian regional
closed-end funds are trading at slight discounts to NAV, making them a
better bargain than closed-end single-country funds. The regional Fidelity
Advisor Emerging Asia Fund, for instance, is at a 5.5% discount to NAV,
Lipper says. "On a relative basis, these funds are cheaper," Mr. Mazzilli
says. "And people shouldn't speculate on just one country anyway." |
