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Registered User
Joined: 10/7/2004
Posts: 319
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Have any of you invested in CEF's (Closed End Funds) vs ETF's (exchange Traded Funds)? If so, what negatives or positives did you experience with one over the other?
Here's an example to consider. BEP, an S&P 500 Covered Call Fund has had a price appreciation of 8.3% YTD ($16.40 to $17.76) plus it paid out $2.00 in dividends for a total YTD return of 20.5%. SPY has had a price appreciation of 5.6% YTD ($124.25 to $131.42)plus it paid out $2.22 in dividends for a total YTD return of 7.6%.
It appears this CEF clearly is outperforming the ETF. And yes, I realize these funds are not equal because BEP writes covered call options on the S&P 500 and SPY does not. But that appears to be an advantage for the CEF vs the ETF.
Any thoughts on these two different investment methods?
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Registered User
Joined: 1/28/2005
Posts: 6,049
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This is just my opinion. I'm no expert on CEF's.
I think CEF's are more in the style of mutual funds.
(they try to appeal as longer term-holdings)
While your example was a specific fund. I think they try to offer
the idea "we can pick quality stocks" and create "good returns
and yields"
I believe there are also CEF's that you can buy at a discount
to net asset value.(or premium)
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I think ETF's are considered more in the style of
trading vehicles.
They are designed to be liquid and low cost.
Things like SPY and QQQQ are designed for short-term investments
to mimic market movements or hedge positions.
You can create good returns from ETF's but it is more a function of
your trading style. Your ability to time the funds. Your ability
to diversify amongst the funds. Your ability to select funds with
high relative strength.
Thanks
diceman
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Registered User
Joined: 12/19/2004
Posts: 10
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I only use CEF's in order to buy assets at a significant discount to the NAV. The key is in selection and finding out who else owns them. Usually you'll have to wait awhile for the discount gap to close, but if you do your homework you can sell at a premium to NAV or the fund will offer you the NAV in order to reduce shares. Herzfeld is the guru, and there is some good info on his site. Treat CEF's like an investment, not a trade.
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