12/23/99:"Market Monitor"-Thomas Herzfeld of Thomas J. Herzfeld Advisors
PAUL KANGAS: My guest market monitor this week is Tom Herzfeld, President of Thomas J. Herzfeld Advisors, a Miami, Florida-based firm specializing in closed end funds. And welcome back, Tom.
THOMAS HERZFELD, PRESIDENT, THOMAS J. HERZFELD ADVISORS: Thank you, Paul.
KANGAS: You know, you haven't been with us since January 10th of 1997 and it's not that you haven't been invited. What's been keeping you away?
HERZFELD: well, of course, I enjoy the show, but it's best to come on when there's something important to talk about.
KANGAS: And there hasn't been a lot going on in closed-end funds for a while. But now there is?
HERZFELD: we've had the best, we have the best buying opportunity in a decade at the moment.
KANGAS: For those viewers that aren't familiar with what a closed-end fund and how it differs from a regular mutual fund, just a brief explanation.
HERZFELD: well, as you said, they're like mutual funds but they trade on the stock exchange like ordinary stocks and their share prices are determined by supply and demand.
KANGAS: A set number of shares, not new shares being issued all the time?
HERZFELD: That's right.
KANGAS: OK. That's a good explanation. Now, why are they such a buy at this time?
HERZFELD: It is the bond funds in particular that are bargains. The discounts to net asset value have been stretched to 15 or 20 percent below the value of the bonds that they own.
KANGAS: Below the actual value?
HERZFELD: Yes.
KANGAS: How do they get in shape like that?
HERZFELD: Well, in December, which is always the best time to buy any type of closed-end fund, tech selling comes into the market and it depress the share prices. Tech selling has been relentless this year due to the heavy losses in the bond market.
KANGAS: Well, we've had such terrific gains in other areas, namely Internet stocks and high technology of most any type. But you feel the bargains now are in the bond funds. How about some closed-end stock funds?
HERZFELD: There are several that we like very much, but the majority of the funds we're looking at right now are bond funds.
KANGAS: Can you can give us a few examples?
HERZFELD: I'll give you an example of how overlooked the industry is.
KANGAS: OK.
HERZFELD: The public is mesmerized by the Internet stocks.
KANGAS: Absolutely.
HERZFELD: And the best, the quickest and most interesting way to make money in closed-end funds is when a fund is open-ended because if it's selling at 20 percent below its net asset value and it's converted to a mutual fund, there's a windfall.
KANGAS: It has to trade in that asset, right? Yeah.
HERZFELD: And just this last week, a fund announced they were open ending and it was totally overlooked.
KANGAS: Really?
HERZFELD: And it was trading 15 percent below its net asset value.
KANGAS: And were you there, it didn't overlook you, though? I would imagine you were in there as a buyer.
HERZFELD: I think we're the only buyer, and this is now 15 days later and everyone has overlooked it.
KANGAS: And you still own the shares?
HERZFELD: Oh, we've been a steady buyer and I don't even want to mention the name on the show.
KANGAS: Well, give us some names that you can mention.
HERZFELD: Well, in the taxable bond funds, Putnam Master Income Trust (PMT) and MCR Charter (MCR).
KANGAS: OK.
HERZFELD: The symbols are PMT and MCR. Those are trading at over 20 percent below their net asset value.
KANGAS: What price range, roughly?
HERZFELD: Oh, these are $6 or $7 stocks yielding 10, 11 percent.
KANGAS: Unbelievable.
HERZFELD: The list changes day to day because the prices move around so quickly.
KANGAS: Well, you are considered one of the world's foremost experts, if not the expert, in closed-end funds. So we've got to take you seriously. But let's have a, how about a closed-end stock fund that has Internet stocks? Anything like that that's selling at a discount?
HERZFELD: There is one, the LCM Internet Fund (FND) that came to market this year. The symbol is FND. It trades at a discount to its net asset value.
KANGAS: Where does it trade? On the big board?
HERZFELD: On the American Stock Exchange.
KANGAS: OK. A lot are on the American but there's a few on the big board as well, right?
HERZFELD: Well, that's, most closed-end funds trade on the New York Stock Exchange. This particular issue is on the American.
KANGAS: OK. And it is a discount yet it owns Internet stocks?
HERZFELD: That's all they own.
KANGAS: That's interesting. And there's the neglect factor, guess, showing in because not too many people are aware of what's going on with these things.
HERZFELD: It came to market. It's done well. Just it's been overlooked.
KANGAS: Yeah. You came public about five years ago with the Herzfeld Caribbean Basin Fund.
HERZFELD: That's right.
KANGAS: At $5.20 a share. And it's still around that price range and yet it's been one of the better performers. How do you explain that?
HERZFELD: Yes. We were actually ranked number one by Lipper for the end, at the end of 1998.
KANGAS: But you paid out big cash distributions?
HERZFELD: We made very large distributions and that's why the price...
KANGAS: Yeah. And if Castro goes, you think it will be a real winner? A big winner?
HERZFELD: Well, the fund was created to invest in the Caribbean now and Cuba once the embargo is lifted.
KANGAS: Right. OK. Tom, it's great to see you again. Let's not make it such a long period between visits.
HERZFELD: Thank you, Paul.
KANGAS: My guest, Tom Herzfeld, President of Thomas J.Herzfeld Advisors. |
