Monday
Oct092006
Choosing a Closed-End Emerging Market Debt Fund
October 9, 2006 at 2:17 PM
I have been very impressed recently by a stock blog called "Where Is The Yield" (WITY). The writer doesn't tell us his real name but he does claim to be male, 26 years old and living in Israel. Recently, he recommended the newly renamed "Western Asset Emerging Markets Debt Fund". (ESD) He's right to note the discount of 15% being historically high. You can buy this fund for 85 cents for each dollar of assets. Now the fund does have a hefty 1.8% expense ratio which means to me that it better trade at a discount. That's a pretty high fee for a bond fund.
I hold small amount of an emerging market bond fund (TEI) as a nice diversifying aspect of my portfolio. There's no reason not to own a small portion of emerging market debt right now. But as a trade I prefer to buy emerging markets during panics not when everything seems as rosey and perfect as it does right now. Yield spreads are at historic lows, emerging market economies like Russia and Brazil are booming do to the recent commodity price highs.
I do not like emerging market debt as an asset class right now. However, if one needs to add emerging market debt fund for a short term trade no reason not to take WITY recommendation.
My general rule is to look at the number of years it would take me to lose the fee differential as it compates to the disount. For example: The difference between ESD (1.81% expense, 14.56 discount) and TEI (1.21% expense, 9.51% discount). The discount difference is 5.05%, expense different 0.6%, 0.6/5.05 = 8.4 years. If my expected holding period is less than 8.4 years and I believe there is no difference between managers debt picking ability, then it makes sense to hold the higher expense fund.
Emerging Market Closed-End Fund Comparisons
(information compiled from Closed-End Fund Association: www.cefa.org)
Symbol Recent Price Ann. Expense Discount Fund Name
ESD $17.67 1.81% 14.56% Western Asset Emerging Market Debt Fund
MSD $10.31 1.36% 4.36% Morgan Stanley Emerging Market Debt Fund
TEI $13.23 1.21% 9.51% Templeton Emerging Markets Income Fund
EDF $12.69 1.82% 13.67% Emerging Mkt II
EFL $13.60 3.05% 7.61% Salomon Brothers Emerging Markets Floating Rate Fund Inc
AWG $12.89 1.54% 11.95% Alliance World Dollar Government Fund, Inc
AWF $13.23 1.23% 9.69% Alliance World Dollar Government Fund II, Inc
Disclosure: I own TEI for my IRA. I have owned and sold MSD in the last two years. I own no other fund mentioned above.
Disclaimer: Nothing in this web log is meant to be a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult your own investment professional before buying or selling any security.
I hold small amount of an emerging market bond fund (TEI) as a nice diversifying aspect of my portfolio. There's no reason not to own a small portion of emerging market debt right now. But as a trade I prefer to buy emerging markets during panics not when everything seems as rosey and perfect as it does right now. Yield spreads are at historic lows, emerging market economies like Russia and Brazil are booming do to the recent commodity price highs.
I do not like emerging market debt as an asset class right now. However, if one needs to add emerging market debt fund for a short term trade no reason not to take WITY recommendation.
My general rule is to look at the number of years it would take me to lose the fee differential as it compates to the disount. For example: The difference between ESD (1.81% expense, 14.56 discount) and TEI (1.21% expense, 9.51% discount). The discount difference is 5.05%, expense different 0.6%, 0.6/5.05 = 8.4 years. If my expected holding period is less than 8.4 years and I believe there is no difference between managers debt picking ability, then it makes sense to hold the higher expense fund.
Emerging Market Closed-End Fund Comparisons
(information compiled from Closed-End Fund Association: www.cefa.org)
Symbol Recent Price Ann. Expense Discount Fund Name
ESD $17.67 1.81% 14.56% Western Asset Emerging Market Debt Fund
MSD $10.31 1.36% 4.36% Morgan Stanley Emerging Market Debt Fund
TEI $13.23 1.21% 9.51% Templeton Emerging Markets Income Fund
EDF $12.69 1.82% 13.67% Emerging Mkt II
EFL $13.60 3.05% 7.61% Salomon Brothers Emerging Markets Floating Rate Fund Inc
AWG $12.89 1.54% 11.95% Alliance World Dollar Government Fund, Inc
AWF $13.23 1.23% 9.69% Alliance World Dollar Government Fund II, Inc
Disclosure: I own TEI for my IRA. I have owned and sold MSD in the last two years. I own no other fund mentioned above.
Disclaimer: Nothing in this web log is meant to be a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult your own investment professional before buying or selling any security.
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