portfolio itself. Running a closed-end fund is like having tenure at a universityâyou can be dismissed, but you have to do something really awful to make it happen.
Iâve never seen a definitive study of whether closed-end funds, as a group, do better or worse than open-ended funds. On casual inspection, neither kind has any particular advantage. Superior performers in both categories appear on the Forbes Honor Roll of mutual funds, which proves that itâs possible to excel with either format.
One intriguing feature of the closed-end funds is that since they trade like stocks they also fluctuate like stocksâa closed-end fund sells at either a premium or a discount to the market value (or net asset value) of its portfolio. Bargain hunters have excellent opportunities in market sell-offs to buy a closed-end fund at a substantial discount to its net asset value.
IF ITâS TUESDAY, IT MUST BE THE BELGIUM FUND
Many closed-end funds are more popularly known as country funds. These enable us to invest in our favorite countries, a more romantic prospect than investing in companies. After a nice bottle of wine in the piazza near the Trevi Fountain, who but the most coldhearted lout wouldnât want to invest in the Italy Fund? Hereâs a tip for the marketing department: attach 800 numbers for country funds to the telephones in the major foreign hotels.
There are at least 75 country funds and/or region funds in existence today. With the breakup of the communist bloc, this number is sure to grow. Two Cuba funds are being launched in Miami, in anticipation of the restoration of capitalism to Havana, and Castro hasnât even packed his bags.
The best argument for country funds as long-term investments is that foreign economies are growing faster than the U.S. version, which causes their stock markets to advance at a faster pace than ours. In the last decade, this certainly has been the case. Even in Magellan, my ratio of winners to losers was higher in foreign stocks than in the made-in-the-U.S.A. stocks.
But to succeed in a country fund you have to have patience and a contrarianâs bent. Country funds arouse a desire for instant gratification. They can be traps for weekend thinkers. A good example is the Germany Fund, and its offshoot the New Germany Fund, both of which were conceived as the Berlin Wall was coming down, and Germans from both sides were hugging each other in the streets, with the rest of the world cheering them on. The great German renaissance was about to begin.
Behind the Wall, as an emotional backdrop, you had the magical reunification of Europe. By the appointed witching hour in 1992, centuries of animosity were supposed to disappear overnight: the French would kiss and make up with the Germans and the English would kiss and make up with the Germans and the French, the Italians would give up their lire and the Dutch their guilders for a common currency, and unity, peace, and prosperity would prevail. Personally, I found it much easier to believe in the turnaround in Pier 1 Imports.
As triumphant Berliners danced on the rubble of the Wall, the price of the two Germany funds was bid up to 25 percent above the value of the underlying stocks. These funds were going up 2 points a day on nothing but a wing and a prayer for an economic boom. The same overblown expectations now exist for the merger of North and South Korea, which I predict will come to a similar short-term end.
Six months later, when investors finally noticed the problems in this great German renaissance, euphoria turned to despair and the Germany funds quickly sold off at a 20â25 percent discount to the value of the underlying stocks. Theyâve been selling at a discount ever since.
Meanwhile, in 1991, when people were still euphoric about German prospects, the stock market there did poorly, whereas in the first half of 1992, when the news from Germany was all gloomy, the stock market did well. Itâs
Iâve never seen a definitive study of whether closed-end funds, as a group, do better or worse than open-ended funds. On casual inspection, neither kind has any particular advantage. Superior performers in both categories appear on the Forbes Honor Roll of mutual funds, which proves that itâs possible to excel with either format.
One intriguing feature of the closed-end funds is that since they trade like stocks they also fluctuate like stocksâa closed-end fund sells at either a premium or a discount to the market value (or net asset value) of its portfolio. Bargain hunters have excellent opportunities in market sell-offs to buy a closed-end fund at a substantial discount to its net asset value.
IF ITâS TUESDAY, IT MUST BE THE BELGIUM FUND
Many closed-end funds are more popularly known as country funds. These enable us to invest in our favorite countries, a more romantic prospect than investing in companies. After a nice bottle of wine in the piazza near the Trevi Fountain, who but the most coldhearted lout wouldnât want to invest in the Italy Fund? Hereâs a tip for the marketing department: attach 800 numbers for country funds to the telephones in the major foreign hotels.
There are at least 75 country funds and/or region funds in existence today. With the breakup of the communist bloc, this number is sure to grow. Two Cuba funds are being launched in Miami, in anticipation of the restoration of capitalism to Havana, and Castro hasnât even packed his bags.
The best argument for country funds as long-term investments is that foreign economies are growing faster than the U.S. version, which causes their stock markets to advance at a faster pace than ours. In the last decade, this certainly has been the case. Even in Magellan, my ratio of winners to losers was higher in foreign stocks than in the made-in-the-U.S.A. stocks.
But to succeed in a country fund you have to have patience and a contrarianâs bent. Country funds arouse a desire for instant gratification. They can be traps for weekend thinkers. A good example is the Germany Fund, and its offshoot the New Germany Fund, both of which were conceived as the Berlin Wall was coming down, and Germans from both sides were hugging each other in the streets, with the rest of the world cheering them on. The great German renaissance was about to begin.
Behind the Wall, as an emotional backdrop, you had the magical reunification of Europe. By the appointed witching hour in 1992, centuries of animosity were supposed to disappear overnight: the French would kiss and make up with the Germans and the English would kiss and make up with the Germans and the French, the Italians would give up their lire and the Dutch their guilders for a common currency, and unity, peace, and prosperity would prevail. Personally, I found it much easier to believe in the turnaround in Pier 1 Imports.
As triumphant Berliners danced on the rubble of the Wall, the price of the two Germany funds was bid up to 25 percent above the value of the underlying stocks. These funds were going up 2 points a day on nothing but a wing and a prayer for an economic boom. The same overblown expectations now exist for the merger of North and South Korea, which I predict will come to a similar short-term end.
Six months later, when investors finally noticed the problems in this great German renaissance, euphoria turned to despair and the Germany funds quickly sold off at a 20â25 percent discount to the value of the underlying stocks. Theyâve been selling at a discount ever since.
Meanwhile, in 1991, when people were still euphoric about German prospects, the stock market there did poorly, whereas in the first half of 1992, when the news from Germany was all gloomy, the stock market did well. Itâs
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