Closed End Funds

There is only one exception that I make to making my own investment decisions. Closed end funds provide three things that I can’t get on my own:
1. A way to invest in some asset classes that are difficult to invest in in any other way.
2. A vehicle that is less immune than either ETF’s or mutual funds to the crowd behavior of either minnows or sharks.
3. A level of instant diversification to make decision making easier so I can focus my attention elsewhere.

Two CEF’s currently meet my buy criteria. No CEF is ever a screaming buy-now. More like a nibble so dollar-cost averaging can work in them.

CHN – China Fund – portfolio is mostly small/mid cap growth companies listed in Taiwan, Hong Kong and Shanghai (A, B, H shares) – portfolio is currently overweight healthcare and consumer and underweight tech and financial – fund has been around for 20 years – selling at a 13% discount to the underlying equities – one of which is a company called Fook Woo (couldn’t resist pulling that one out)

CEF – Central Fund of Canada – portfolio is entirely gold and silver bullion in a ratio of 1:50 (by oz) held in a segregated, allocated account in Canada – fund has been around for 50 years – current gold holdings are roughly comparable to the gold holdings of the central bank of Finland – currently selling at a very slight discount to the spot price of gold/silver (for the first time since 2005). This fund is a far better vehicle for gold/silver exposure than the big ETF’s – for reasons which I won’t explain but which give CEF a premium when gold/silver prices are rising. The current discount is also very revealing. CEF never sells at a discount unless gold and silver are stagnant/choppy for a somewhat extended period. The discount itself is a far better predictor of gold/silver prices than the hype/BS of those who prognosticate about gold/silver. So it makes for a better insurance hedge part of a financial portfolio (that can’t invest in physical – which is the EOTWAWKI hedge). Never chase CEF just to get an order filled.


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