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Some good closed fund bets
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December 9, 1998: 3:27 p.m. ET
Some advice from one expert on how to invest wisely in closed-end funds
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NEW YORK (CNNfn) - From Australian debt to biotechnology companies and the down-trodden oil sector, money manager Tom Herzfeld sees good opportunities in the arcane world of closed-end mutual funds.
Herzfeld, a leading expert in the field who is chairman of Thomas J. Herzfeld Advisors in Miami, said this is one of the best times of year to invest in closed-end funds.
Because managers are adjusting their portfolios to lessen the tax blow, many closed-end funds are trading at higher discounts than usual, Herzfeld said.
Unlike open-ended mutual funds, which create new shares to meet investor demand, closed-end funds have a finite number of shares and trade like stock at a discount or premium of their net asset value.
Herzfeld's strategy is to invest in funds at a discount and sell them when the discount narrows. For example, he'll buy a fund at a 25 percent discount and sell it when it's trading at a 20 percent discount. So even if the market is flat and the net asset value is unchanged, he can make money.
But, if the net asset value rises and the discount narrows, then the profit is even greater.
Here are some funds that he recommends as of Wednesday:
- The Emerging Markets Infrastructure Fund [EMG], trading at a 21 percent discount, has investments in Eastern Europe, Chile, Brazil, Taiwan, Mexico and Israel.
- The Engex Fund [EGX], trading at a 20 percent discount, is 30 percent leveraged and owns companies in the biotechnology sector. Its top holdings include Enzo Biochemical Inc., ICN Pharmaceuticals Inc. and Interneuron Pharmaceuticals Inc.
- The Petroleum & Resources Fund [PEO], trading at a 7 percent discount. The fund owns Royal Dutch Petroleum Co., Exxon Corp. and Mobil Corp.
- The Equus II Fund [EQS], trading at a 26 percent discount. The fund acts like a business development company by investing in small- to medium-sized privately owned companies.
- First Australia Prime Income Fund [FAX], trading at a 12 percent discount, invests in mostly Australian debt.
-- by staff writer Martine Costello
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