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I like PHT on the pull back
Old 02-06-2015, 05:11 PM   #1
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I like PHT on the pull back

CEF that kept dividend same since 2002, It just dropped dividend, at 13.80 about a %10 yield now, and I hope some upside in price over next few years. Still has a premium to NAV, but not out rageious in my opinion.
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Old 02-06-2015, 06:58 PM   #2
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Any people say I am a risk taker...

I'll offer a contrary opinion on PHT. I didn't like them at a 30% premium. I don't like them now. I don't buy CEF's at a premium. Why? Because there are 500+ that are trading at a discount. FYI, most people like CEF's due to high income, NOT price movements, so I think you are a bit hopeful there. This is the bigger fool theory in action, if you think it is going to return to a 30-40% premium. Ask yourself why it will return to a 30-40% premium vs settle in to a 15% premium or less after a div cut?

PHT cut the div 16% due to the low interest rate environment and the inability to find higher yielding investments, which is a fairly consistent theme I have seen with junk bonds. They took a 20%ish price hit on top of that.

You don't think a 15% premium is outrageous? Consider on absolute terms, it is in the top 2% most expensive of all CEF's from a premium/discount standpoint. You think it is going to go from the top 2% highest premiums back to the top 1/2 of 1% highest premiums?

I think there are better risk/reward opportunities out there.
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Old 02-07-2015, 06:16 AM   #3
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CEFs have no linkage to the real NAV. They usually have very high fees and trade at discounts. I would not touch a CEF.

ETFs are so much better. Usually low fees and they are linked to the underlying NAV via price arbitrage.
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Old 02-07-2015, 08:59 AM   #4
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Now we have the opposite opinion, all 500+ CEF's are terrible investments...

CEFs have no linkage to the real NAV.

That isn't true at all. Many studies support strong mean reversion in CEF's and they even have the Z stat as a measure of relative vs historical valuation.

Exploiting Closed-End Fund Discounts: The Market May Be Much More Inefficient than You Thought by Dilip K. Patro, Louis R Piccotti, Yangru Wu :: SSRN
Evidence on the Mean-Reverting Tendencies of Closed-End Fund Discounts by Dominic Gasbarro, Richard David Johnson, J. Kenton Zumwalt :: SSRN

They usually have very high fees and trade at discounts.

Never thought I'd see someone complaining about buying a dollar for 90 cents. Discounts generate a bit of risk free yield, which I am happy to take if you don't want it. Heck, I know one CEF that is a fund of funds trading at like a combined 17-18% discount. If you don't want that, I'll take some. Key question regarding the fees which are typically amplified by their use of leverage and financing costs is, is it worth it after expenses?

ETF's can't use leverage. ETF's typically have lower yields and no discount opportunities.
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Old 02-07-2015, 10:33 AM   #5
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Quote:
Originally Posted by bad_LNIP View Post
Never thought I'd see someone complaining about buying a dollar for 90 cents.
But that's a 'permanently impaired' dollar. Imagine buying a fixer-upper house that is 33% below market value. But the catch is that you are limited to what you can do to improve that house's market value by remodeling. Imagine the house can only have an old-school coal-fired furnace, and can only have an outhouse. Yes, the inside could sparkle, but with some features of the house, it will always demand a discount.

Quote:
Originally Posted by bad_LNIP View Post
Discounts generate a bit of risk free yield, which I am happy to take if you don't want it. Heck, I know one CEF that is a fund of funds trading at like a combined 17-18% discount. If you don't want that, I'll take some. Key question regarding the fees which are typically amplified by their use of leverage and financing costs is, is it worth it after expenses?

ETF's can't use leverage. ETF's typically have lower yields and no discount opportunities.
So what is the total wrapped expense ratio of that 17% discount FoF CEF? Maybe 2%? Maybe 1.5%? How much are you willing to pay for an investment that has to earn all of that JUST TO BREAK EVEN each year?

And put in a better perspective:

What is your future nominal long-run average investment return forecast (assuming inflation is 2 1/2%-3%)? Maybe 7%? Maybe 6%? (I'm assuming that FoF is 100% equities, and holds very few, if any, bonds)

Look at what that combined FoF expense ratio is compared to your forecast long-run average return. How much of a discount do you need if a CEF has a significant cost structure compared to your total long-run return forecast (maybe 1/4? Maybe more?). If the total ER fees is 25% of your forecast long-run return, then perhaps getting 'just' a 17% discount isn't quite as cheap as it first appears?
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Old 02-07-2015, 10:39 AM   #6
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Even though something trades at a 17-18% discount nothing says it can't go to a 21% discount and stay that way for a very long time. Some people may try a soft arbitrage and buy at a historically deep discount and hope that it comes back in to line. Unless the fund plans to liquidate the market pricing has no connection to the NAV.

The fees on most of these funds are the reason for the discounts in the first place.
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Old 02-07-2015, 11:06 AM   #7
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perrytime, putting aside the debatable aspects of this particular fund and CEFs in general, what attracts you to the junk bond sector at this time?
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Old 02-07-2015, 11:25 AM   #8
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Now we have the opposite opinion, all 500+ CEF's are terrible investments...

CEFs have no linkage to the real NAV.

That isn't true at all. Many studies support strong mean reversion in CEF's and they even have the Z stat as a measure of relative vs historical valuation.

Exploiting Closed-End Fund Discounts: The Market May Be Much More Inefficient than You Thought by Dilip K. Patro, Louis R Piccotti, Yangru Wu :: SSRN
Evidence on the Mean-Reverting Tendencies of Closed-End Fund Discounts by Dominic Gasbarro, Richard David Johnson, J. Kenton Zumwalt :: SSRN

They usually have very high fees and trade at discounts.

Never thought I'd see someone complaining about buying a dollar for 90 cents. Discounts generate a bit of risk free yield, which I am happy to take if you don't want it. Heck, I know one CEF that is a fund of funds trading at like a combined 17-18% discount. If you don't want that, I'll take some. Key question regarding the fees which are typically amplified by their use of leverage and financing costs is, is it worth it after expenses?

ETF's can't use leverage. ETF's typically have lower yields and no discount opportunities.
I have two CEFs, small positions in GIM and PDT. GIM is my only bond fund, PDT has a very decent risk adjusted return. CEFs can be a great source of current income.
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Old 02-07-2015, 01:35 PM   #9
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Even though something trades at a 17-18% discount nothing says it can't go to a 21% discount and stay that way for a very long time.

Efficient markets would never allow...no wait, nevermind. If it goes to a 21% discount, you can get an even larger windfall yield and compound even faster. It isn't all about capital gains.

The fees on most of these funds are the reason for the discounts in the first place.

That's not true at all. Nobody knows why CEF's trade at a discount. Nobody. Lots and lots of smart people have analyzed it over the years, and nobody knows, and I doubt you've figured it out. Some say the low institutional ownership, some say high fees, some say emotional retail investors.

But that's a 'permanently impaired' dollar

Unless it reverts to the mean...which they tend to do.

So what is the total wrapped expense ratio of that 17% discount FoF CEF? Maybe 2%? Maybe 1.5%? How much are you willing to pay for an investment that has to earn all of that JUST TO BREAK EVEN each year?

The management fee is almost free at a 17% discount. Given a yield of 8%, for easy math, lets say it is priced at 10 NAV and yield 80cents/year. 8% is pretty much what it is yielding. Market price drives the discount to 17% or 8.30. At 8.30, your market price yield isn't 8%, but rather 9.6% for a difference of 1.6%, so your 1.5% combined fee is eclipsed by the "windfall yield" you receive for buying it at a discount.
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Old 02-07-2015, 02:33 PM   #10
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i am not the most savy investor, i think junk bond fund, while technically accurate, is overly negative sounding. I think $ can be made in this space. Should I mention the top quality stocks I have purchased, BP just before oil spill. Timing of purchase is important, luck is important.
My interest is in PHT is a high yield fund that appears to me to have been run better than most, unchanged dividend 2002 till now, has had income to cover dividend, did not ROC to meet the dividend. And seems like a good entry point. plenty of CEFs with same or less yield don't have income to cover and use ROC to fund the dividends. Maybe some of those souls who have recently purchased PHK, %60 premium, will jump to pht, same yield.
I general I think market will be pretty flat, and don't expect SPY to continue it's climb.
So I want yield.

Maybe I am just a careless yield chaser, time will tell.

I welcome specific CEF or ETF recomendations with similar yield.


What some real fun, how about CEFL?
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Old 02-07-2015, 05:11 PM   #11
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I think you can make money on junk bonds and high yield cef, but I would just pick one not trading at a lofty premium. ROC is not inherently a good or bad thing per se. It depends on the fund and strategy for example mlp and option income regularly generate ROC but it isn't bad. I gotcha on wanting yield but the analysis needs to go way beyond just yield. I doubt the phk crowd is going to jump in and I seriously doubt pht is going to swing to a premium. Cefl probably has a better risk-reward profile than any of these

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