There's a rule of thumb for investments made in closed end funds -- always buy at a discount, and aim for at least a 10% discount to par if you want to execute a value-type play.
This rule especially applies to the current market, where uncertainty is rife and the specter of a genuine downturn of magnitude is in the cards.
Our data for May suggest there is value in the near term, assuming no cataclysmic events within the next three to six months, for investors to take positions in the Latin American and Mexican markets. Three funds on our list fit in the discount category: the Mexico Fund (MXF - Get Report), the Mexico Equity Income Fund (MXE - Get Report) and the Latin American Equity Fund (LAQ - Get Report).
In general, emerging markets are the ones trading at higher discounts, which is of course risk-related. But for those investors looking for a riskier asset class combined with a foreign exposure, emerging markets may be the option.The Clough Global Allocation Fund (GLV - Get Report) is 70% allocated to U.S. equity, predominantly in oil and gas (which right now is not a positive), and the financial services sector (including banking) as of March. Investors should check to see if there has been any reported change in the sector and geographical allocation because current conditions dictate a rotation out of energy and an increase in allocation to overseas markets. Further exposure to the banking and financial services sector at this stage assumes that the credit and economic problems of unemployment and inflation are somewhat contained -- which is a large assumption. The fund trades at close to a 9% discount. Next on the list are options for the emerging Europe with the Central Europe & Russia Fund (CEE - Get Report) trading at a 7.5% discount and the Morgan Stanley Eastern Europe (RNE) trading close to a 6% discount. Investors may want to wait and see if these funds get to our 10% discount threshold.
|Select Closed-End Fund Data
|NAME, TICKER & TSC GRADE||OBJECTIVE||Return May 2008 (%)||Month End Premium/Discount (%)|
|Mexico Fund (MXF) A||Non-US Equity||10.31||-15.10|
|Mexico Equity & Income Fund (MXE) C+||Non-US Equity||8.75||-13.47|
|Latin America Equity Fund (LAQ) B+||Non-US Equity||10.01||-9.59|
|Clough Global Allocation Fund (GLV) C+||Growth & Income||8.44||-8.82|
|Central Europe & Russia Fund (CEE) B||Non-US Equity||14.88||-7.47|
|Morgan Stanley Eastern Europe (RNE) C+||Non-US Equity||15.39||-5.89|
|Latin American Discovery Fund (LDF) C+||Non-US Equity||14.05||-5.57|
|Castle Convertible Fund (CVF) B||Growth & Income||11.90||-3.58|
|Claymore Raymond James SB1 Ety Fd (RYJ) E+||Equity Income||13.20||-3.30|
|Royce Micro-Cap Trust (RMT) C||Growth - Domestic||10.26||-1.51|
|Templeton Russia&East European Fund (TRF) C+||Non-US Equity||10.19||-1.15|
|Royce Value Trust (RVT) C||Growth - Domestic||10.08||-0.43|
|Royce Focus Trust (FUND) B+||Growth - Domestic||13.76||2.96|
|Cohen&Steers Worldwide Realty Inc (RWF) D-||Global Equity||14.09||3.17|
|Japan Smaller Cap Fund Inc. (JOF) E||Non-US Equity||9.49||3.36|
|PIMCO Floating Rate Income Fund (PFL) C-||Loan Participation||8.91||5.36|
|LMP Real Estate Income Fund Inc (RIT) C||Growth & Income||9.82||6.22|
|Cohen&Steers Premium Income Realty (RPF) C+||Growth & Income||8.28||7.60|
|Turkish Investment Fund (TKF) C||Non-US Equity||9.87||8.42|
|BlackRock VA Muni Bond Trust (BHV) B-||Municipal Single State||8.47||21.52|
|Source: INSERT SOURCE|