Some Top Closed-End Funds Still a Bargain

The best-performing closed-end funds in the second quarter capitalized on the trend of rising energy and other commodity prices. Many of these funds are still trading at a nice discount to net asset value and are worth looking at during short-term market dips.

The best-performing closed-end fund from March 31 to June 30 is the BlackRock Global Energy & Resources Trust(BGR Quote - Cramer on BGR - Stock Picks). This A+ rated fund, after gaining 25.39% in the second quarter, finished the period at a discount to net asset value of 15.58%.

The rising tide of energy prices lifted the oil, gas and coal company stocks such as top-10 holdings of Consol Energy(CNX Quote - Cramer on CNX - Stock Picks), up 62.60%; Peabody Energy(BTU Quote - Cramer on BTU - Stock Picks), up 72.81%, Massey Energy(MEE Quote - Cramer on MEE - Stock Picks), up 156.99%; and Petroleo Brasileiro(PBR Quote - Cramer on PBR - Stock Picks), up 39.05%.

Not to be outdone, the fund's holding of Patriot Coal skyrocketed 226.36% in the quarter.

In the coal industry, tight supply conditions blamed on shortages of skilled labor and capital investment have kept prices high. The recent floods have also prevented barges of coal from reaching waiting customers and washed out railroad track connections for some coal haulers.

When a fund's portfolio manager really likes a specific stock and sees a catalyst for a large move higher in the short run, buying stock options is one way to make a leveraged bet on specific securities. The managers at BlackRock Global Energy and Resources saw such potential in Peabody Energy.

Their Jan. 31 portfolio lists 500 call option contracts, giving them the right but not the obligation to buy 50,000 shares of Peabody at a strike price of $60 per share. Assuming they held the contracts the whole time, on March 31 with Peabody shares closing at $51.00, the options had no intrinsic value. The options at the end of March sold for $195 ($1.95 contract price times 100 shares). The day before these options expired on June 21, the shares closed at $80.31 or just over $20 above the option's strike price. The options last traded for $2,000. A speculative investment of $97,500 at the end of March would have been worth $1 million near the end of June.

A sum of $1 million to a $1 billion market-cap fund like BlackRock Global Energy and Resources is a drop in the bucket. But, $1 million here and $1 million there eventually adds up to real money.

In July, the coal stocks have pulled back amid profit-taking. Watch for an opportunity to buy the coal stocks if they get further beaten up in successive rounds of profit-taking.

The second best performing closed-end fund in the second quarter is the A- rated DWS Global Commodities Fund(GCS Quote - Cramer on GCS - Stock Picks). The fund gained 20.76% in the period, ending at a discount to net asset value of almost 12%. The largest holdings include Exxon Mobil(XOM Quote - Cramer on XOM - Stock Picks), Chevron(CVX Quote - Cramer on CVX - Stock Picks) and Monsanto(MON Quote - Cramer on MON - Stock Picks).

Aside from this fund's holding of Peabody Energy, other standouts include three-month returns of 99.14% from Cleveland-Cliffs(CLF Quote - Cramer on CLF - Stock Picks), 50.55% from Tenaris SA(TS Quote - Cramer on TS - Stock Picks) and 45.86% from United States Steel(X Quote - Cramer on X - Stock Picks).

One fund on the list to be wary of is the Cornerstone Total Return Fund(CRF Quote - Cramer on CRF - Stock Picks). The fund is up 17.45% while the value of its assets fell about 3% for the quarter. This closed-end fund is trading at an immense 88.26% premium above net asset value, leaving significant room to fall. Top-10 holdings having a rough quarter include General Electric(GE Quote - Cramer on GE - Stock Picks), down 27.08%; AT&T(T Quote - Cramer on T - Stock Picks), down 11.13%; and Procter & Gamble(PG Quote - Cramer on PG - Stock Picks), down 12.71%.

Best Performing Closed-End Funds in Second Quarter 2008
Fund (Ticker) Rating	Total Return 3 Months	Total Return 1 Year	Premium/ (Discount)	Objective
BlackRock Global Energy & Resources (BGR) A+	25.39%	34.93%	-15.58%	Sector - Energy/Natural Res
DWS Global Commodities Fund (GCS) A-	20.76%	34.88%	-11.97%	Global Equity
Petroleum and Resources Corp. (PEO) A	20.02%	25.56%	-13.27%	Sector - Energy/Natural Res
Cornerstone Total Return Fund (CRF) C-	17.45%	-22.16%	88.26%	Equity Income
Kayne Anderson Energy Tot Ret (KYE) B+	17.14%	7.91%	NA	Sector - Energy/Natural Res
Clough Global Allocation Fund (GLV) B-	16.32%	15.08%	-8.08%	Growth & Income
Western Asset Emerg Mkts Fltg (EFL) B+	15.44%	13.54%	8.47%	Emerging Market Income
Gabelli Global Gold Nat Res & Income (GGN) A+	15.24%	21.12%	-7.50%	Sector - Precious Metals
Latin American Discovery Fund (LDF) C+	14.21%	21.37%	-7.04%	Non-US Equity
GreenHaven Continuous Commodity (GCC) U	14.04%	N/A	0.14%	Growth & Income
Source: TheStreet.com Ratings

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