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Using Discounted Closed Ended Funds designed to Increase Income and Reduce Risk

Currently focuses on: Cohen & Steers Select Utility Fund (nyse: UTF)

Its investment objective is to achieve a high level of after-tax total return through investment in utility securities. In pursuing total return, the Fund equally emphasizes both current incomes, consisting primarily of tax-advantaged dividend income, and capital appreciation. Under normal market conditions, the Fund will invest at least 80% of its managed assets in a portfolio of common stocks, preferred stocks and other equity securities issued by companies engaged in the utility industry.

The Utility and Electrical industry is forecasted to grow at 8.5% for then next 5 years.*

Currently the Cohen & Steers Select Utility Fund is at a 16.89% discount

That means for every 100,000 invested in principle you invest roughly only 83,000.

Using regression to the mean* theories believing that historical mean for US based closed end funds historically trade at a 5% discount we would forecast Cohen & Steers Select Utility Fund would increase in principle about 12 percent assuming no change in the market value.

** Regression to the mean is a technical term in probability and statistics. It means that, left to themselves, things tend to return to normal levels, whatever that is.

Cohen & Steers Select Utility Fund has a short but profitable history of growing principle

The current income from this fund is 6.14%

We believe due to the fact you could buy 100,000 pounds of income producing utilities that produce over 5% income or over 5,000 pounds per year for around an investment of 83,000. Those how invest with the much lower amount of 83,000 still has the same income of over 5,000 giving a much higher income of 6.14%

Performance:

If you’re patient, buying funds at a steep discount can be extremely lucrative? For example, suppose you divided the closed-end universe into fifths, starting with the most expensive. The priciest 20 percent gained 48 percent in the past five years. The 20 percent with the steepest discounts, however, soared 160 percent. ***

To Reduce Risk

With an effort to reduce the risks associated with closed ended funds at deep discounts with high income we recommend diversification using many different asset classes and fund families utilizing asset allocation approach. In our growth and income model we use 7 different asset classes to provide a balanced portfolio. This structure was designed to minimize fluctuations. An event that might hurt one class of investments might benefit another. Two examples of this is after the 911 terrorist attack and the 2000 stock market crash. In both cases the stock market had a tremendous sell off, but the high grade bonds had very large rallies. During those two events the stock market and high grade bonds had no correlation. Many experts believe diversifying between non-correlated asset classes is the single best way to reduce volatility risk.

When building portfolios we use a selection criteria that focus on: unique asset classes, deep discount , high yield, consistency of payments, ongoing fees and other factors we incorporate into the selection are, past track record of the fund, and past track record of the management team, and of course the management team. We apply our selection criteria to over 600 closed ended funds with a goal to find only 1 or 2 in each asset class that fits our needs.

Simply dont put all your eggs in one basket. If the assets classes are non-correlated this reduces the portfolio risk.

To summarize Cohen & Steers Select Utility Fund:

1) A conservative industry
2) Diversifies investments inside the utility industry
3) An industry forecasted to grow at 8.5%
4) Investing at a 16.89% discount
5) Receiving a 6.14% current income
6) Regression to the mean would indicate principle growth of about 12% with no market change.

We forecast Cohen & Steers Select Utility Fund to achieve industry growth rates plus regress to a more historic means these two combined events would indicate a total return of 10.9% percent per year over the next 3 to 5 years.

Randy Durig manages several Portfolios including the Growth & Income Portfolio to see the full list go to www.durig.com or www.money-manager.us

Randy Durig owns Cohen & Steers Select Utility Fund in his discretionary client’s portfolios and in his personal account. Past performance is not a guarantee for future returns. All information we believe to be correct but make no guarantee to accuracy.

Durigs Monopoly Blue Chip Portfolio National Performance Rankings: 3rd In the United States, Ranked by 3 year annual return, for Large Capitalization Blend, 4th Quarter 2005, By Money Manager Review.

Durig Capital is a registered investment advisor. If you know someone that would like to receive our research call toll free 877-359-5319.

For those looking for articles on closed and mutual funds Randy recommends www.investment-investment.us there are about 75 articles focused on mutual funds and Exchange trade funds.

*Zacks Utility industry forecast
** Source http:www.visi.com
***Source USA Today newspaper

Investments in Mutual Funds – A Guide to the Most Favorable Investment Vehicle

As you probably know, Mutual Funds in India is gaining ground & have become a extremely popular investment option. The fund industry has witnessed healthy growth in last five years or so. For the individuals wanting to build their wealth over a long period, mutual funds can be the most important ingredient to their investment plan. It is one of the most popular investment avenue in today’s dynamic and fast evolving markets.

Mutual Fund is nothing but a common pool of savings created by a number of investors & is an ideal investment product for an individual investor. Different investors with common investment objective contribute to create a common pool of money & this money is then invested by fund manager according to the objective of the scheme.

Mutual Funds can help investors in virtually entering the equity market with hands-off approach. There is a wide range of Mutual Fund available in the market, each one having diverse specifications to meet your requirements

There are numerous benefits of investing in mutual funds and one of the key reasons for its phenomenal success in India is the range of benefits they offer, which are unmatched by most other investment avenues.

Benefits of Investing through Mutual Funds:

For an investor, mutual fund offer wide range of benefits. Some of the key benefits include:-

1.Portfolio Diversification:

2.Professional management:

3.Flexibility to meet your needs and goals:

4.Convenient Administration:

5.Return Potential:

6.Low Costs:

7.Liquidity:

8.Transparency:

9.Flexibility:

10.Choice of Schemes:

11.Well Regulated:

Types of Mutual Fund Schemes:-

There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectations.

a) By Structure:

Open Ended Schemes: These do not have a fixed maturity. The key feature is liquidity. You can conveniently buy and sell your units at Net Asset Value(NAV) related prices, at any point of time.

Closed Ended Schemes: These funds have a stipulated maturity period (ranging from 3 years to 10 years). The ‘Unit Capital’ of such schemes is fixed as it makes a one time sale of a fixed number of units. After the offer closes, closed ended funds do no allow investors to buy or redeem units directly from funds. However, to provide liquidity to investors, closed ended funds are listed on stock exchanges. Some close-ended schemes give you an additional option of selling your units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor under the close ended schemes.

Interval Schemes: These combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices.

b) By Investment Objective:

Growth Schemes: Aims to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short term decline in value for possible future appreciation. These schemes are not for investors seeking regular income or needing their money back in the short term.

Income Schemes: Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes: Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace or fall equally when the market falls.

Money Market / Liquid Schemes: Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market.

c) Other Equity related Schemes:

Tax Saving Schemes: These schemes offer tax incentives to the investors under tax laws as prescribed from time to time and promote long term investments in equities through Mutual Funds.

Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors.

Index Funds: These funds have the objective to match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky.

With gold prices hovering around 1200 for last couple of days, commodity analysts and market participants are eagerly watching whether it is able to sustain the up move and scale further higher highs. Is the gold over-valued at 1200? Is it still a bargain hunter’s choice? Has it reached new highs due to fundamental factors? Are the speculative forces driving the prices? Keeping aside the debate on these questions, one thing is certain that gold will continue to be a part of every investor’s portfolio as an insurance against inflation, geopolitical tensions and turbulence in the global financial markets.

This article explains some basic yet useful information about investment in gold through alternative channels such as Gold Exchange Traded Funds instead of buying physical asset.

In India, Gold Exchange Traded Fund is a relatively new concept but since the day Benchmark Mutual Fund launched the first Gold Exchange Traded Fund on 8 March 2007, six more mutual fund houses have launched Gold Exchange Traded Fund, which is a cost effective and convenient method for investing in gold through units of mutual funds. Gold ETF offers many advantages over the conventional method of buying physical gold. Investment objective of Gold Exchange Traded Funds is to generate returns that closely correspond to the returns provided by domestic price of spot gold.

At present, there are seven Gold ETF schemes available in India. Benchmark Mutual Fund was the first Mutual Fund House to have lauched Gold Exchange Traded Funds (NSE Symbol GOLDBEES) in India. Reliance (NSE Symbol RELGOLD), Kotak (NSE Symbol KOTAKGOLD), UTI (NSE Symbol GOLDSHARE), Quantum (NSE Symbol QGOLDHALF), SBI (NSE Symbol SBIGETS) and Religare (NSE Symbol RELIGAREGO) are other Mutual Fund Houses that have launched GOLD Exchange Traded Funds.

Most of the Gold ETF schemes have provided compounded annual returns of about 23% since the date of inception. The minimum investment amount varies from Rs.5000 to Rs.20,000 depending upon the Mutual Fund. If you want to know more about different features of GOLD ETF Schemes such as what the face value of each unit is, what the applicable loads and expenses are, how to invest in Gold ETF schemes, and how to buy and sell gold units on stock exchanges, you should refer the websites of AMFI or Mutual Funds.

Summing Up:

Regardless of where the gold prices are going, smart investors, global or Indian, will continue to allot a small percentage of their portfolio to yellow metal. Launching of Gold ETFs in India has made it a simple and convenient affair for the investors who want to buy gold as a hedge against inflation or as an investment asset.

The Author is a Techno-Commercial Consultant and Freelance Content Writer. Get more info on Financial Awareness Portal
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