Primer on Closed-End Funds (JOF)

Husbank finding

Closed-End Funds at a Discount is another Asset Class to Study.

A decent review of CEFs: CEFA_Brochure

I have found 15% discounts in relatively “cheap” markets can be attractive. Look at the history of premiums and discounts.

Of course, there is no hope for Japan, but now Japan’s Central Bank will be under pressure to join the reflation party.  There are plenty of reasons why Japan’s stocks will languish–poor corporate governance, declining population, massive inefficiencies in the domestic market due to protectionism, etc.

Brandes Believes (research)

Japan A New Dawn in the Land of the Rising Sun


This is probably a very cheap value trap. You won’t get killed, but can you make your required return?




3 responses to “Primer on Closed-End Funds (JOF)

  1. Thanks for your review of CeF’s with nice additions!

    Belgium guy

  2. I can see why some funds have high discounts: its to justify the high expense ratios (costs/NAV, whilst e.g. NAV has gone down recently).

    You can calculate annual outperformance of the portfolio vis-a-vis the underlying basket supposing the discount stays equal in the future:
    as follows:

    (Yearly dividend YIELD to fundholders + Annual (% of outstanding) share repurchases) * (1 / (1- intrinsic discount) – 1)

    e.g. for a 2% and 0% div yield and share repurchases resp, and a intrinsic discount of 50%, you would get a 2% annual outperformance of the fund vis-a-vis the basket. This outperformance due to intrinsic discount EXISTS to justify the high annual expense ratio (2% e.g. for some of the high discount funds on your website!)

    Note that some european closed-end holdings (in the file I gave you) had huge discounts *without* the high expense ratio (I calculated it for EBR:SOF, its like 0.1%; same for EBR:TUB; same for EBR:HENX).

    In short, it looks like the EU closed-end fund market valuation is much less efficient.


    If you look for funds with expense ratios lower than 0.5%, theres *no* fund with a discount higher than 2%. Confirming my thesis.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.