TIPS Fund Taken to Task for Tactics Flip

Closed-end funds issue a fixed number of shares that trade throughout the day on an exchange, like stocks. So when too many investors head for the exit, share prices can fall below the value of a fund's holdings.

Bartlett adds that since the investment change was announced, the fund's discount has widened by 1.5 percentage points.

Karpus has asked the fund to reconsider the changes, or at least open them up to a shareholder vote. "Our primary purpose of owning shares in WIW is the 80% of the fund that must be allocated to U.S. TIPS, which provides for high credit quality and low risk for our conservative investment clients," Bartlett says.

He speculates that Western Asset/Claymore may be changing its investment strategy to differentiate itself from its "sister" fund, the (WIA Quote)Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund (WIA). The sister fund has assets of $373 million and currently trades at a 10.24% discount to its NAV.

Bartlett believes it would be more appropriate to merge the two funds. By changing WIW's investment strategy, "the trustees can continue to receive two directors' fees, auditors can continue to receive two audit fees, the attorneys can continue to receive two attorney fees, and the New York Stock Exchange can receive two listing fees," the letter said. "All at the expense of shareholders."

Bartlett concedes that the investment change isn't illegal and that litigation on the matter is unlikely.

Western Asset/Claymore did not return calls seeking comment.

You can listen to Bartlett's thoughts on activist investing at this link.