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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (103801)	4/10/2006 9:51:11 AM
From: Knighty Tin	Read Replies (2) \| Respond to of 132070

Shane, there are a few reasons for persistent discounts: 1. High Management fees. 2. The fund does rights offerings, and buyers discount that threat to their assets. 3. The fund leverages its portfolio. 4. No broker is pushing CEFs the way they push open end funds, except at the IPO. Most folks think the reason for that is the fees at the IPO, and that is certainly part of it. But brokers simply do not follow most CEFs once they are out of the IPO period. There is no wholesaler coming around pounding on them to "give my fund a shot." 5. Many brokers and clients don't even know that they can buy CEFs after the IPO. The best performing large cap domestic equity fund since 1927 has been General American (GAM), a closed end fund. It sells at a deep discount most of the time. They do use leverage, though they often have their leverage money in reserve, waiting for a market correction. I don't remember them doing a rights offering, but they may have at some point. They are not backed by a major fund co. or brokerage firm. And most brokers have never heard of them. Even after I tell them and show them the performance, they can't figure out how selling the fund develops a stream of commission for their book, which it doesn't. It is pretty much a one time decision. When a broker mentions that he is selling a fund in a certain area, I will often say, "why not use a better performing fund that is selling for 87 cents on the dollar." The answer is usually, "there's no way I can explain that to clients." Which means they don't know what the hell I'm talking about. <G>