New closed end fund idea

[brewer12345]

Check out PPT and sister fund PIM. ~13% discount to NAV, reasonable (for a CEF) expenses, OK management, no leverage, and generally high quality intermediate bond holdings. What makes these interesting is that Putnam is under pressure to do something about the discounts to NAV: they have a proposal put to shareholders every year to convert to an open-ended fund as long as the discount is larger than a certain amount for a certain time. So they have been buying back shares in the open market, which should eventually narrow the discount. Looks interesting, for a conservative asset class in a setting that might boost returns as the discount to NAV narrows.

 

[FinanceDude]

Check out PPT and sister fund PIM. ~13% discount to NAV, reasonable (for a CEF) expenses, OK management, no leverage, and generally high quality intermediate bond holdings. What makes these interesting is that Putnam is under pressure to do something about the discounts to NAV: they have a proposal put to shareholders every year to convert to an open-ended fund as long as the discount is larger than a certain amount for a certain time. So they have been buying back shares in the open market, which should eventually narrow the discount. Looks interesting, for a conservative asset class in a setting that might boost returns as the discount to NAV narrows.

brewster, Putnam is for sale.............are they trying to do these things to create window dressing, or are they trying to shine up their tarnished image?

Few fund companies have taken a beating like Putnam has, albeit for good reasons....................

 

[brewer12345]

brewster, Putnam is for sale.............are they trying to do these things to create window dressing, or are they trying to shine up their tarnished image?

Few fund companies have taken a beating like Putnam has, albeit for good reasons....................

Agreed, Putnam is not without its issues. But I think they have a very simple motivation for the buybacks: they are trying to hang onto the assets under management. These funds include a provision that requires them to offer shareholders the option of converting to a traditional mutual fund structure once a year if the discounts stay wide. If they do convert, these funds are likely to see a large outflow of assets at NAV (vs. the double digit discounts they now sport), so if you use 10% of the assets to buy back shares and close the discount enough that shareholders don't get the option to take ALL the assets away, you preserve a fee stream.

From the point of view of the investor, either outcome is good because it reduces discount to NAV and juices returns.

 

[MooreBonds]

Brewer,

I always appreciate your posts on investment opportunities (and will likely be scooping up some ISM/OSM this week in my IRA)...however, in this case, I'm troubled by some of the holdings of PPT/PIM.

When you go to etfconnect, they list their top 10 holdings...in both CEFs, it appears a MAJORITY of their top 10 holdings (about 33% of the total fund's portfolio) are in bonds that have coupons that are 2.5% and BELOW (the worst in the top 10 is Japan's 0.74% security). God only knows what the rest of their portfolio is in...

Granted, they may have purchased these at a discount...but it doesn't give me a warm fuzzy that that much of the funds' holdings are in securities with that low of a coupon/yield.

 

[brewer12345]

Brewer,

I always appreciate your posts on investment opportunities (and will likely be scooping up some ISM/OSM this week in my IRA)...however, in this case, I'm troubled by some of the holdings of PPT/PIM.

When you go to etfconnect, they list their top 10 holdings...in both CEFs, it appears a MAJORITY of their top 10 holdings (about 33% of the total fund's portfolio) are in bonds that have coupons that are 2.5% and BELOW (the worst in the top 10 is Japan's 0.74% security). God only knows what the rest of their portfolio is in...

Granted, they may have purchased these at a discount...but it doesn't give me a warm fuzzy that that much of the funds' holdings are in securities with that low of a coupon/yield.

The name of the game on securities like that is total return. That means that return can come from coupons and appreciation. Heck, for all we know, they could have enetered into simultaneous currency swaps that locked in a 6% USD return on those bonds.

You would prefer that they have a portfolio of 10% coupon (junk) bonds?

 

[FinanceDude]

You would prefer that they have a portfolio of 10% coupon (junk) bonds?

yes, please........................


Moderator edit: quote format fix