"Market Monitor"-Thomas Herzfeld, President of Thomas J. Herzfeld Advisors
Friday, December 28, 2007PAUL KANGAS: My guest market monitor this week is Thomas Herzfeld, president of Thomas J. Herzfeld Advisors, a firm specializing in closed end funds. Welcome back to NIGHTLY BUSINESS REPORT Tom.
THOMAS J. HERZFELD, PRESIDENT, THOMAS HERZFELD ADVISORS: Thank you, Paul.
KANGAS: As one of the world's top experts in closed end funds, please explain to our viewers the differences between standard mutual funds, exchange-traded funds or ETFs as we call them, or closed end funds now.
HERZFELD: They're all investment companies. Mutual funds are bought through dealers. You pay the net asset value or the net asset value plus a sales charge. ETFs have fixed portfolios and they trade on the stock exchange, usually at net asset value. Closed end funds have continually managed portfolios and trade based on supply and demand in the marketplace.
KANGAS: Well, you're the expert. You're considered a world expert on them and how did the closed end funds perform in 2007 as we close the year?
HERZFELD: A mediocre year, struggling through most of it, primarily because last year, the year-end tax selling, there weren't a lot of bargains around. That's where most closed end fund investors make most of their money in the period now and to the beginning of the year. Also, the sub-prime problems hit the closed end funds, even funds that have nothing whatsoever to do with sub-prime.
KANGAS: A lot of stocks, generally were hurt just by the general dismal nature of the market.
HERZFELD: Exactly.
KANGAS: What is the outlook for closed end funds in 2008?
HERZFELD: This marks my 40th year in specializing. I think it's the best opportunity in at least a decade.
KANGAS: Why?
HERZFELD: The net asset values have not been all that weak, but the share prices came under tremendous pressure and discounts are as wide as I've seen them.
KANGAS: And that's what you love. Those discounts are where you jump in. They don't even have to get to a premium for you to have a profit.
HERZFELD: No. We like to buy a fund whose discount is likely it narrow at least five percentage points.
KANGAS: What's a good buy-in point, 15 percent discount?
HERZFELD: It should be wider than its own average and wider than its peers.
KANGAS: On your annual December visit with us last year, you gave our viewers four buy recommendations. Let's see how they did since then. Let's get the first two, Western Asset (ESD) down .2 percent. But I know there were some changes. These are just the buy and the sell prices during the year. You probably traded this one three or four times during the year at a profit.
HERZFELD: Well as I mentioned a moment ago, we buy these for year-end trades. We've been in and out of it several times. But the performance that you're showing doesn't actually -- is not representative of what actually occurred.
KANGAS: This doesn't include dividends, which in many cases are very handsome.
HERZFELD: The last one, Central Europe (CEE) just paid out a $10 a share distribution. So the actual performance on that was up about 30 percent this year. Without that dividend you're calculating .
KANGAS: And then you had two others (Alliance California Muni Income Fund (AKP), Castle Convertible Fund (CVF)) that you recommended and they look to be down, but here again, that does not include the dividend.
HERZFELD: You're not recalculating the distributions. The average return of the four picks for the year was about up 10 percent.
KANGAS: OK, not bad. That's not shabby at all for 2007. Do you have any new recommendations for our viewers?
HERZFELD: Well, three. They're all invested in both U.S. and foreign securities.
KANGAS: Clough Global Opportunities (GLO).
HERZFELD: That's the total return in both stocks and bonds in the U.S and overseas. It's trading at a 13 percent discount to net asset value near its widest level of the year.
KANGAS: And that's why you like it here.
HERZFELD: Yeah, and it is also a well managed fund we're buying for year-end
trades. That's one you can hold though.
KANGAS: OK. We have a minute left and time for maybe two more.
HERZFELD: Well, (DHG) (DWS Dreman Value Income Edge Fund). It's invested in a lot of out-of-favor areas at the moment. The discount has widened to about 16 percent.
KANGAS: That's good.
HERZFELD: It's paying out about 11 percent. GLO is paying out about nine.
KANGAS: That's not bad. How about one more?
HERZFELD: DWS Multi Market Income Trust (KMM). It's lower rated bonds including emerging market debt, Brazil, Argentina and Turkey, paying out about 9 percent and trading at a 13 percent discount to net asset value.
KANGAS: Right in that level that you think are bargains. Doesn't make any difference what the name is. You just like anything that's at a discount--
HERZFELD: I know you like to look at them over the longer term, so we picked some you could hold as well.
KANGAS: Tom, do you personally own any of these funds or do you have any other disclosures to make?
HERZFELD: Loaded with them.
KANGAS: You own all of them.
HERZFELD: Every one.
KANGAS: OK, very good. I want to thank you for being with us once again.
HERZFELD: Happy New Year Paul.
KANGAS: My guest, Thomas Herzfeld of Thomas J. Herzfeld Advisors.
