Investing in Closed-End Mutual Funds: High Yield High Return Investing Strategies: An Exclusive Interview With …
67 WALL STREET, New York – January 14, 2011 – The Wall Street Transcript has just published its Large Cap and Other Investing Strategies offering a timely review of current portfolio management techniques for serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Large Cap Value Investing – Quantitative Growth-Oriented Investing – Niche Companies – Tax-efficient Investment Strategies
Companies include: Ameriprise Financial (AMP); Applied Materials (AMAT); Linear Technology (LLTC); Procter & Gamble (PG); Aflac (AFL); American Electric Power (AEP); AutoZone (AZO); Avon (AVP); CPI Corp (CPY); Chevron (CVX); Compass Diversified (CODI); Deere & Company (DE); Edwards Lifesciences Corporation (EW); Freeport-McMoRan Copper & Gold (FCX); GlaxoSmithKline (GSK); InterDigital (IDCC); Kaman Corp. (KAMN); Kennedy Wilson (KW); Macquarie Infrastructure (MIC); McGraw-Hill (MHP) McKesson Corporation (MCK); Measurement Specialties (MEAS); Medtronic (MDT); Meredith (MDP) Minerals Technologies (MTX); Neenah Paper (NP); Nokia (NOK); Nortel Networks (NRTLQ); Occidental (OXY); Qualcomm (QCOM); Standard Parking (STAN); United Technologies (UTX); Varian Medical (VAR).
In the following brief excerpt from just one of the in depth interviews in this extensive report, an experienced portfolio manager discusses the market outlook for investors.
Jonathan S. Raclin is a Principal of Barrington Research Associates, Inc., and of an affiliated company, Barrington Asset Management, Inc. Mr. Raclin manages The Enterprise Portfolio, a special situation portfolio for separately managed client accounts. He graduated from St. Lawrence University (B.A.) and from Northwestern University (M.A.).
Following service as a Commissioned Officer in the United States Marine Corps, Mr. Raclin was associated as a Partner of William Blair & Company, LLC, and as an Executive Vice President of The Chicago Corporation. He is a former Regional Chairman of The National Association of Securities Dealers, and a former President of The Bond Club of Chicago and of The Attic Club. He is President of the Coastal Georgia Historical Society and Co-Chairman and Director of EMMI Solutions, LLC, a privately held health care information technology company.
TWST: Tell us about the specific funds in the portfolio.
Mr. Raclin: Presently the portfolio is comprised of six mutual funds. We have a reserve component with an approximate 14% in cash and the balance in the Central Fund of Canada (CEF), a portfolio of gold and silver bullion. We do not own futures contracts or mining companies. The underlying net asset value for the CEF has appreciated approximately 42% this year; the stock, over 46% YTD. It pays a nominal dividend, as does the cash reserve fund.
In the equity income area, we own two funds, AGIC Convertible & Income Fund (NCV), approximately 50% in high-yield debt, 25% in convertible debt and 25% in convertible preferred stocks. This portfolio has appreciated 21% this year while the stock has gained 27% this year. It is currently yielding 10%.The second fund is Alpine Total Dynamic Dividend Fund (AOD). That fund had a very difficult year being significantly invested in Europe with tremendous volatility of currency fluctuations.
Earlier in the year, AOD was selling at a significant premium, paying a very large but, to me, unsustainable dividend. I thought the dividend would get cut, which it did, and the portfolio, which was selling at a 30% premium to the underlying portfolio, excessively valued. The fund, which had sold as high as $9.36 a share, subsequently fell to as low as $4.83 a share. Our cost is approximately $4.90 a share. It is now trading at $5.74, currently yielding 11.5% even after they cut the dividend by more than half. This shows how the valuation discipline really helped alert us to both the risk and the resulting opportunity.
In the growth area, we own Templeton Emerging Markets Fund (EMF), primarily invested in all the usual suspects – China, India, Brazil – but also with exposure in Turkey, South Korea, Indonesia and numerous other countries. The fund is managed by Mark Mobius, one of the most experienced international investors. Emerging markets, not a particularly new story, are doing many of the right things from an economic policy point of view, while also possessing extremely favorable demographics; a growing number of increasingly prosperous middle class consumers. I think that this is a great long-term growth investment while also recognizing that there will be periods of extreme volatility. This portfolio has appreciated 22% this year; the stock has gained 21%, the dividend is modest.
The last two funds are in the natural resource area. BlackRock Energy and Resources Trust (BGR) is invested almost exclusively in energy-related investments, coal, oil, natural gas, pipelines, drillers and service companies. This portfolio has appreciated 23% this year, while the stock is up 25% with a yield of an approximate 6%. BlackRock EcoSolutions (BQR) is possibly a significant long-term winner. BQR is up only 6.7% this year; the stock is up approximately 8.3% with a current yield of over 10%. For both of these funds, the distributions are a function of BlackRock’s very excellent call-writing capabilities.
What I particularly like about the EcoSolutions Fund is that 20% of the portfolio is invested in water, especially important in developing countries with a growing need for clean water. It takes tremendous amounts of water for manufacturing, for agriculture, for general population requirements. BQR also has a significant exposure to a variety of agricultural-related companies; fertilizer, farm equipment, seed and chemicals, along with processors and distributors.
And BQR has significant exposure to green energy – wind, solar, other advanced technologies in alternative fuels. Governments around the world are putting a lot of money in these areas to reduce unemployment. England, for instance, is putting significant amounts of government resources into wind farms.
Alternatives represent a small portion of energy today and yet, the profitability could be very good as the price of oil approaches $90 a barrel. The Enterprise Portfolio is comprised of cash and precious metals for reserves, convertible and high-yield bonds with a broad-based equity income fund for distributions, an emerging markets portfolio for growth and two natural resource funds, one “below the ground,” the carbon-based energy fund, and one “above the ground,” to include agriculture, water, wind, and solar.
TWST: How do you allocate between funds and how do you select them for investment?
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