Many of you have heard of the book 10-10-10, a Life-Transforming Idea, Here’s our take on it.
10-10-10 An Investment-Transforming Idea
10 Ideas, 10% Discounts, 10% yield.
Closed-End Funds present investors with an opportunity to take advantage of an inefficient market. By this we mean buying assets at a discount to their Net Asset Value (NAV). Obviously one must consider what the underlying assets of the fund are, but in general purchasing assets at a discount can give you many advantages including:
Increased yield benefit – If you buy an asset at a 10% discount that yields 10%, you attain a 1% yield benefit.
Potential narrowing of discount – If you buy an asset at a 10% discount and the discount narrows to 5% you pocket the difference.
Activism and conversion to Open-End Fund – The potential for activism or open ending can narrow a funds discount, however, investors should not buy a fund solely on this criteria.
Institutional borrowing rates – A funds borrowing costs are less than yours. i.e., If you are looking to margin 20% of your holdings your best bet is to find a fund with 20% leverage as their costs to borrow would be significantly lower than yours.
The screen below is our first 10-10-10. (Click on it to enlarge) We would not just buy these based solely on this criteria, but it’s a good place to start to find value. You can do your own screens for ETFs and CEFs at www.etfdesk.com. Happy Hunting.