Description
This article is from the A Guide to
Closed-End Funds (CEFs).
Example: Asia Pacific Fund
As the chart below shows, the Asia Pacific Fund has traded
consistently at premiums often as high as 30+%. Bad news and selloffs
pushed APB to discounts briefly, and a nimble trader could have taken
advantage of such dips. The chart below shows two such opportunities:
- In the week ending March 10th, APB dipped to an unusual discount
on heavy selling (the news was the collapse of the Barings bank, which
manages the fund). A trader would have stepped in around $12.25 (a
nice relative discount of roughly -15% and a discount of roughly
-10%). Within four weeks, APB was back to its customary premium and a
trader could have exited in the week ending 3/31 at $14.75 (a relative
discount of +5%). This trade would have netted a profit of roughly 20%
over a period of less than 4 weeks. As you can see from the chart, the
NAV itself rose only around 5% in that period.
- In the week ending December 9th, 1994, APB was trading at a wide
relative discount (less than -10%) and a discount of less than -10%.
A trader could have stepped in initially around $13, and added to the
position around $12.5 (notice how important it is to dollar cost
average down, it is usually impossible to buy at the bottom). The
trader would probably have exited in the week ending 1/13 when the
relative discount reached +5% at $13.625. This trade wasn't very
profitable, around 5-9% depending on the entry point. But then the NAV
actually went down by -7.5%! Since the trader bought at very good
valuations, even a downturn in the market (which of course is hard to
predict), could not stop him from showing a profit. Such is the power
of closed-end funds.
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CEFs, closed-end fund, premium, discount, volatility, trading, investing, leverage, yields, buying, selling, shares, money, funds, mutual funds, adventages, disadvantages, liquidity, commissions, brokers, source, information, reference
