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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: fedhead who wrote (3684)	11/3/2003 7:38:48 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 4915

FCO: according to Morningstar, the expense ratio is 2.17%, which strikes me as very high when compared to my own expense ratio of 0.0% when i buy bonds directly. also, i notice that FCO traded at a hefty 9.66% premium to NAV as of 10/31 close according to Morningstar quicktake.morningstar.com in contrast, my own bonds i buy at a 0% premium to NAV. i don't know why anyone would pay a premium for any closed-end fund other than Berkshire Hathaway. about the only advantage i see to a fund like this, compared to buying directly, is that diversification is easier. also, a share could be bought for as little as 13.02 at today's close. whereas buying foreign bonds directly, i have to buy in 100,000 face increments. but imo, since i buy sovereigns of (hopefully) creditworthy nations (at least as creditworthy as the US, mehopes :), i am not worried about credit risk, which takes away my biggest need for diversification. the next need is to diversify into more than one currency, but this i can accomplish with a handful of countries--i do not need 100 different currencies! so i would not be at all interested in FCO... let's see, GIM (five stars, whoopdy-doo!)... quicktake.morningstar.com expense ratio: 0.75%--much cheaper than FCO in this dept! premium to NAV: 2.59%--again, not as bad as FCO still, that is 0.75% and 2.59% compared to my 0.0%. i generally dislike mutual funds because i dislike expenses of all kinds. remember, it's not just a one-time expense. btw, anybody know why FCO trades at a much higher premium to NAV than GIM does? also, why the hell do these things trade at a premium instead of a discount? don't closed-end funds normally trade at a discount? the expense ratio is applied over the entire holding period. if the holding period is 30 years--and i certainly expect to be holding a significant percentage of bonds at least that long--then that's 0.75% x 30 = 22.5% of principal! that is a 22.5% headwind i avoid by buying directly. or in the case of FCO, the headwind is 2.19% x 30 = 65.7% of principle, which they would need to make up through superior "bondpicking" to my buy-direct approach. and perhaps they or GIM will outperform, with names like "Ukraine Cabinet of Minsters 144A 7.65%", but i really don't want to lend money to the Ukraine or the Philippines in today's Credit Bubble environment, which seems to extend to third-rate countries as much as to third-rate companies. when it comes to risky plays, i would rather do it through the equity part of my portfolio. in short, i don't see how these funds could match or beat my returns from my simple buy-direct strategy, unless they go out farther on the risk curve than i do. in which case, we are not comparing apples to apples... on an apples to apples comparison, the NAV premia and cumulative effect of year after year of expenses seen in the expense ratios make these a non-starter for me. it's the same reason i buy equities direct instead of buying mutual funds. one fund family which supposedly has some good global bond funds is DFA (Dimensional Fund Advisors). the hitch with DFA is that they are only available through select Advisors, who themselves charge fees, so i am not interested.