H&Q Healthcare Investors (HQH) and H&Q Life Sciences Investors (HQL) are trading at discounts that are higher than the long-term averages, while the industry doesn’t look that bad. It more or less has underperformed since the last 4 to 10 years when compared to the S&P 500, as it has for the last year, which is a (weak) sign that it may be going through a period of low demand, confirmed by reasonable fundamentals. Stocks with high idiosyncratic volatility, such as the ones in these portfolios, usually follow these patterns of low/high demand as a group (the dotcom bubble was an extreme example).
The high discounts are probably due to the funds (at least HQH) not paying dividends on capital gains, as they used to until recently. This change of policy may have upset some holders that chose to sell, but for me it offers a tax advantage. Moreover, those sales by dividend-seeking investors may not have found enough buyers yet, because institutional investors don’t pay much attention to CEFs, given their limited liquidity and their expenses (institutions can buy the underlying assets directly, at reasonable cost). Read more…
“Closed end mutual fund” is a misnomer. Three basic types of investment companies are recognized legally:
- Mutual funds, also called open-end companies.
- Closed-end companies, also called closed-end funds.
- Unit investment trusts.
Therefore, the correct term is closed-end fund, without the mutual. Closed-ended fund is also acceptable.
Sometimes close-ended fund is used, even close-end fund. I wasn’t sure about the validity of those ones, so I googled a few authoritative investment sites, that have no user-generated content, to see how frequently (according to Google) each variation is used: Read more…
A mean, also average, is a number that summarizes a set of numbers. There are three kinds of averages: arithmetic, geometric and harmonic. To understand their differences, lets analyze the concept briefly.
If we ask for the average grades of a student whose accumulated grade is T, it is implied that we refer to a number such that, if all grades were equal to that number, then the total would also be T. For example, if the grades were 3, 4 and 5 (which add up to a total of 12), then the average would be 4, because if each grade were a 4, then the total would also be 12. This is the most common type of average or mean, called arithmetic. We usually refer to this kind when we say average without specifying which type.
The formula for calculating arithmetic means is well known and pretty straightforward. To obtain the arithmetic average of n numbers a, we sum these numbers and then divide by n:
The key to understanding the difference with the other kinds of means, and their applications, is realizing that in the grades example, as in every case that uses the arithmetic mean, the “accumulated total” is built through addition. But there are other situations in which there is a total that is the result of a different operation. Read more…
I’m Andy, and today I’m opening this blog on closed-end funds. Also known as CEFs, these investment vehicles are like mutual funds and ETFs, but with fundamental differences that we will address in future posts.
The purpose of the blog is to discuss investing in CEFs, and the perspective of specific funds. Your knowledge and opinion are more than welcome, so please share your comments and subscribe to the feed to receive update notices using your favorite reader.