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

To: Knighty Tin who wrote (52741)	3/21/1999 2:01:00 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

To All, Closed End Fund Preferreds. In the past, I have been critical of preferred stock, in general, for individual investors. However, when rates on bonds dropped to record lows, preferred stock yields did not drop with them, creating a source of value for income investors of all types. Let me go through a discussion of my thinking and a definition of the critter about whom I am talking: 1. CEF preferred stocks are basically a way for CEF's to buy on margin. If a fund has $100 million in assets, they can sell up to $33 million in preferred stock and have an extra, borrowed $33 million to invest for common shareholders. Some characteristics of the preferreds are: All are rated Triple A. I consider them higher than Triple A as they have first call on the $133 million in investments mentioned earlier, meaning the funds have to decline by 75% before the assets are in any danger whatsoever. They pay high yields for their credit quality. They have no set maturity date. Most of the funds that have preferreds are pretty conservative animals. These are not internut owners or investors in Russian fixed income securities. Also, it should be noted that these are not convertible issues, despite the unfortunate name of one preferred, the Gabelli Convertible Fund preferred. The fund is a convertible fund, the preferred is a straight preferred. 2. I rate these preferreds as somewhere between Treasuries and Triple A corporate bonds for protection. 3. They can be used for interest rate option income plays with a fat yield advantage, though you may have to sit down and talk turkey with your broker. 4. Some have tax advantages. More on this as I get all the details, but some pay long term cap gains as part of their yield, reducing your tax bite in regular accounts. Obviously, these are of no interest in an IRA or 401-K, but of great interest in regular accounts. Typically, and not surprisingly, the tax advantaged preferreds sell at lower yields than the regular dividend preferreds. The ones I like include Royce Value Trust (RVT-), yielding 7.6%. Royce is already buying low pe stocks, so the risk of the fund itself is lower than the market risk. Tricontinental (TY-) is a boring growth and income fund that has been in business since the Earth was cooling. The preferred only represents 1% of the fund's capitalization, so this is the safest of the safe. However, it yields much less with a tax advantaged 6.5%. Gabelli has a slew of these things. The Gabelli Trust (GAB-) is probably the most conservative. Gabelli Convertible (GCV-) should be the most conservative, but the last list of holdings I saw almost made me lose my lunch. They are buying garbage converts when they could be doing the new convertible strategy, buying leaps and shorting stock or calls from time to time, on quality issues. Hopefully they will soon hire somebody who understands the market and how it has changed. Gabelli Multimedia (GAM) is a nice fund, but in some issues that are pretty pricey. I don't think there is much risk to the preferred, but if everything else were equal, I'd rather have GAB- or RVT- backing my cash. These are not traders. Volume tends to be very low. They are more buy and hold situations and you could be hurt by a large rise in rates if you are unhedged. But, as far as straight income deals go, this is an area that has the most bang for the super low risk. MB