Expert Manager Talks Closed-End Funds

Occasionally, we are willing to overbuy an especially attractive sector. For example, the senior loan group had terrible NAV performance early in 2008, but even after NAV's stabilized, discounts continued to tumble. We saw this as a great buying opportunity and accumulated First Trust / Four Corners(FCM Quote) at LMP Corporate(TLI Quote) at attractive discounts. Recently discounts in this sector narrowed considerably.

We try not to overdo owning any particular sector, and not just in order to remain diversified. Among the many factors that influence the movement of CEF discounts, one is a tendency for funds to behave like others in their sectors, so we believe owning the funds within a sector that are most attractively valued on a short- or intermediate-term basis is a winning strategy. REIT fund discounts, for example, have narrowed dramatically, so that none meet our strictest buy criteria, but we have been successful trading a few, such as Nuveen Real Estate Income(JRS Quote), that narrowed less than the others.

Q: What are you doing now?

A: Staying with the REIT sector, we've recently traded DWS RREEF II(SRO Quote), which tends to track closely its sister fund, DWS RREEF(SRQ Quote). A primary consideration in this purchase was a substantial narrowing in SRQ, so SRO was a laggard play based on the historical relationship.

In the emerging market space, there has been a dramatic narrowing in Asian funds. We continue to hold some we might otherwise have sold, but we have also taken a small position in Thai Fund(TTF Quote), which historically trades at a premium but recently is trading at a discount.