小弟最近想開始練習CEF, ETF以及ETD的分析，想說同時也分享給大家看看，有任何指教
非常歡迎跟小弟說。
文章內容會分中英文版。
圖文版：https://reurl.cc/K6Ryam
EMD is a CEF (i. e. Close-End Fund) with INCEPTION DATE Dec-01–2003 that have
distribution by monthly basis, in this article we are going to introduce this
commodity and keep track of it.
There are some factors we will concentrate on so as to determine if this CEF w
e are willing to put our capital in. Let’s say Portfolio Holdings, Portfolio,
Premium or Discount, Distributions, Total Leverage Ratio and Expenses.
We can get all the data we want in Morningstar, CEFConnect and Legg Mason to g
et documentation.
First of all, let us focus on Portfolio Holdings and Portfolio.
Portfolio Holdings
Portfolio
Go through the Credit Quality.
Go through the holdings based on Country Breakdown.
Go through the Coupon Rate.
What Is a Coupon Rate?
A coupon rate is the yield paid by a fixed-income security; a fixed-income sec
urity’s coupon rate is simply just the annual coupon payments paid by the iss
uer relative to the bond’s face or par value. The coupon rate, or coupon paym
ent, is the yield the bond paid on its issue date. This yield changes as the v
alue of the bond changes, thus giving the bond’s yield to maturity.
How a Coupon Rate Works
A bond’s coupon rate can be calculated by dividing the sum of the security’s
annual coupon payments and dividing them by the bond’s par value. For exampl
e, a bond issued with a face value of $1,000 that pays a $25 coupon semiannual
ly has a coupon rate of 5%. All else held equal, bonds with higher coupon rate
s are more desirable for investors than those with lower coupon rates.
- https://www.investopedia.com/terms/c/coupon-rate.asp
Eventually we go through the Maturity Breakdown.
Secondly, we review Premium or Discount.
Before we get started to examine the premium or discount, we are supposed to e
xplain the concept Absolute and Relative Premium/Discount.
Absolute:
CEFs have an underlying portfolio of securities. From this portfolio, a net as
set value (NAV) can be derived [NAV = (assets liabilities) ? shares outstan
ding].
The investment portfolio primarily, if not solely, comprises the assets. For l
everaged CEFs, the leverage itself is the bulk of the liabilities. CEFs trade
on an exchange. This means that they have a share price, which is set by the m
arket. These 2 prices, the NAV and the share price, are rarely the same, and w
hen they are, it’s only by coincidence.
The differences between the share price and the NAV create discounts and premi
ums.
You could examine the explanation in more detail - https://www.fidelity.com/le
arning-center/investment-products/closed-end-funds/discounts-and-premiums
Relative:
Relative discounts/premiums are relative to the average discount of the partic
ular closed-end fund (CEF) being considered.
In truth, all discounts and premiums are relative to another number. Absolute
discounts/premiums are relative to the net asset value (NAV). Relative discoun
ts/premiums are relative to the average discount of the particular closed-end
fund (CEF) being considered. Because absolute discounts and absolute premiums
tend to persist, relative discounts and relative premiums matter. Academic stu
dies have shown that current discounts/premiums converge to their average disc
ounts/premiums much more regularly than they converge to their NAVs.
- https://www.fidelity.com/learning-center/investment-products/closed-end-fund
s/relative-discounts-premiums
Thus, we are going to concentrate on the relative premium/discount. As you can
see in below graph, the Average is discount (i. e. with minus symbol -), aver
age discount is 12.55%. Therefore, we found out the fact that current absolute
discount is actually relative premium.
Distributions
In the section of Distributions, there are some items we are supposed to know:
Income: The amount of the distribution attributed by the fund to net investmen
t income, such as interest and dividends.
S/T Cap Gain: The amount of the distribution attributed by the fund to realize
d short-term capital gains.
L/T Cap Gain: The amount of the distribution attributed by the fund to realize
d long-term capital gains.
Return Cap: Return of Capital. This is an important topic for closed-end funds
. Return of capital is, in most instances, your own money being returned to yo
u. The tax treatment usually serves to lower your investment cost basis, but c
onsult a tax advisor. Return of Capital can be destructive, meaning it is lite
rally your own initial investment being return, or constructive, meaning that
it is arising from unrealized capital gains. For closed-end funds investing pr
imarily in Master Limited Partnerships, the return of capital is pass-through
capital, and is neither destructive nor constructive.
We prefer our distributions attributed by the fund is from Income instead of R
eturn of Capital (i. e. ROC), but low percentage of ROC is acceptable.
As you can see, EMD persists to distribute 0.1 monthly and ROC accounts for 19
.2% of total distributions. (i. e. 0.0192 ? 0.1 = 19.2%)
Income is at 80.8% of total distributions.
Thus, what comes to our mind is at what percentage should we put our capital i
nto specific CEF. In my opinion, I am going to draw the line when the ROC is a
t 20%. In other words, 20% is the maximum tolerance to me.
Total Leverage Ratio
What Total Leverage Ratio is:
Closed-end funds are permitted to utilize financial leverage. This ratio is ca
lculated as total leverage divided by the sum of total leverage and net assets
. The total leverage ratio includes both 1940-Act leverage (such as loans, lin
es of credit, revolving credit agreements, notes payable, and commercial paper
) and non-1940 Act leverage (such as tender option bonds, reverse repurchase a
greements, securities lending, and mortgage dollar rolls). For instance, a rat
io of 25% would indicate that for every $1.00 of investable capital, $0.25 is
derived from leverage. Note that some funds do not update their leverage amoun
ts regularly; calculations are based on the last reported leverage amount.
At what percentage of total leverage ratio is reasonable to me? In my opinion,
20–40% is what percentage I can accept.
Expenses
Let’s move on to The final factor: Expenses.
Morningstar
CEFConnect
The expenses ratio comprises some items:
- Baseline Expense
- Interest Expense
- Total Expense Ratio Adjusted
Like mutual funds and ETFs, a CEF has a reported expense ratio. However, there
are a couple of factors that make CEF expense ratios a little different. If i
t’s a debt-leveraged CEF, the expense ratio includes interest expense. Most l
everaged CEFs exact an expense against not only net assets, but also the lever
aged assets.
Even though interest expense is a true expense, it also brings a benefit: the
excess gain achieved from the leverage.
- https://www.fidelity.com/learning-center/investment-products/closed-end-fund
s/expenses
Total Expense Ratio Adjusted of EMD is 2.35%, which comprises Baseline Expense
by 1.26% and Interest Expense by 1.09%.
What expense ratio we should focus mainly? I would say it’s Baseline Expense,
Most time we will compare expense with other commodity such as Mutual Fund an
d ETF, and we will subtract Interest Expense from total expense so as to make
comparison based on same basis.
Therefore, we can use Baseline Expense of EMD to compare with others, and 1.26
% is acceptable to me.
Yields
Price - Yields
24 - 5% ( 0.1*12/0.05=24)
20 - 6% ( 0.1*12/0.06=20)
17.14 - 7% ( 0.1*12/0.07=17.14)
15 - 8% ( 0.1*12/0.08=15)