Why I’m shorting these three closed-end funds

As usual, I attempt to achieve my exposure to risk assets with closed-end funds and other securities where I believe there is a chance to achieve relative price outperformance. At present, I have less long exposure than typical in Taxable Income, Activism Profile CEFs, and Core.

I don’t have a crystal ball which tells me when the market’s pullbacks will occur. I certainly do not put stock in market timing as being one of my attributes. But it may prove beneficial to be less greedy right now, as others might become more so. And I never mind having capital to allocate when standout opportunities present themselves.

I have seen some recent opportunities in closed-end funds which appear positioned for bad moves. In the Long/Short Opportunistic portfolio, I opened new short positions in Guggenheim Strategic Opportunities Fund (GOF), Clearbridge Energy MLP Fund (CTR), and Salient Midstream and MLP Fund (SMM). All three trade at premiums to their Net Asset Values (“NAV”). More importantly, I don’t view the premiums at these particular funds as justified or sustainable.

GOF Chart

GOF data by YCharts

CTR Chart

CTR data by YCharts

SMM Chart

SMM data by YCharts

My allocations within the MLP Direct Ownership model are reflective of my opinion that certain MLPs are attractive sources of long term yield. I just don’t believe that CTR and SMM prices presently reflect how good or bad those instruments are among opportunities for MLP exposure. I do expect “Mr. Market” will opine regarding the discount on those funds.

I am still net long the MLP sector with allocations to the holdings in both models.

The investments discussed are held in client accounts as of April 30 , 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

Author profile

Dan Plettner
Dan Plettner
For more than 14 years I've focused my investing and research efforts on Closed-End Mutual Funds, called CEFs. They represent an alternative way to invest in stocks and bonds. CEFs frequently trade at a discount relative to the price of fund’s underlying portfolio, which I personally see as a way to own stocks and bonds at a discount to their underlying value.

I previously worked as a closed-end fund product specialist at Morgan Stanley. More recently, I provided independent closed-end fund research to institutional investors. I have written more than 50 articles regarding closed-end funds and am frequently quoted in the media.

My goal is to invest in funds that I believe offer a favorable mix of risk versus potential reward. I attempt to earn a profit when the gap between the market price and the net asset value of a fund narrows.