Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

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Lauretta
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Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Lauretta »

I am considering investing in a Vanguard Private Equity closed end fund.
It is selling at a discount greater than 40%. So I understand that I am paying 60 cents for 1 dollar. It looks like a bargain but I am not famliar with this investment vehicle. Could it stay indefinitely below NAV? Or do they tend to match NAV over time? Anything I should know about closed end funds?
Here's the fund info (it's on the LSE but I am posting the question here in theory since I am more interested in understanding closed end funds in general)
https://www.hl.co.uk/shares/shares-sear ... y-ordinary
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by JoMoney »

Yes, a 'Closed End Fund' can persistently trade below the market value. It's actually the normal situation for a CEF to trade at a steep discount to market value of the assets, and that's for highly liquid marketable assets. You seem to be talking about a "private equity" fund, which means there is no highly liquid market to derive the actual market value from, and the actual market value if the assets were to be liquidated at any given time is prone to a very wide margin of ideas of the actual value. There's been some lawsuits in the news recently where the owner of some "private equity" is claimed to have misstated the value by a very large amount, to the point where it might be considered fraudulent, but even that's difficult to prove - valuing private equity is prone to a lot of subjective judgement... Until it's sold, in general I think "fair value" is wherever a willing buyer and willing seller meet on price, but there are exceptions to that when there's intentional collusion to push up (and sometimes down) the quoted market value for tax reasons or perhaps other market manipulation.

I'm not a fan of traditional actively managed mutual funds, in part because of the poor transparency on the transactions inside the fund and it's difficult to tell if there's churning going on inside the fund where the asset managers are slowly fleecing the fund owners through transaction fees and poor trades/cross-trading/principle transactions. Index funds are much better because it's easier to see if an index fund is matching it's third-party index returns. A private equity fund is even less transparent than a traditional mutual fund, and you can't even see how a liquid market is valuing the assets. With a closed-end private equity fund you have no way of knowing if the >40% disparity in price you're seeing is the market doing it's normal discount on a CEF and how much is the market layering that discount on top of the market believing the asset managers are mis-quoting the value of their assets.

I do believe Vanguard is a very reputable company, that's not trying to fleece the owners on any of it's funds, but they're not above offering lousy products that nobody should invest in.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by ResearchMed »

Lauretta wrote: Fri Sep 30, 2022 8:04 am I am considering investing in a Vanguard Private Equity closed end fund.
It is selling at a discount greater than 40%. So I understand that I am paying 60 cents for 1 dollar. It looks like a bargain but I am not famliar with this investment vehicle. Could it stay indefinitely below NAV? Or do they tend to match NAV over time? Anything I should know about closed end funds?
Here's the fund info (it's on the LSE but I am posting the question here in theory since I am more interested in understanding closed end funds in general)
https://www.hl.co.uk/shares/shares-sear ... y-ordinary

I'm not familiar with this CEF except for what I've just looked at through your link.

I don't see that it has anything to do with Vanguard as you described it above ("a Vanguard Private Equity closed end fund"). So if there is something about "Vanguard" that makes it attractive to you, double check that.

As for your question about whether it will tend to match NAV over time, please look at the link on the right hand side. That includes information about the past 12 months average premium or discount: -20.71%.
That's not really close to NAV, but it's better than the current -45%!
Question is... is it holding steady there, heading back up, or perhaps on a path even lower?

Do you understand *what* this CEF actually holds/does/is?
If you look at the business summary, there seem to be a lot of "HarborVest" arms, which seems confusing, which seems - to me - to be a warning. Where in the hierarchy are you/your investment likely to be?

As an [amusing?] aside, the symbol "HVPE" seems a bit too similar to "HYPE" to me... :wink:

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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by cheezit »

There are some posters on this board ( I think alex_686 is one of them) who have experience calculating NAV for funds under conditions where there is insufficient current liquidity of the underlying assets to calculate it based on market price. A private equity fund can be considered an extreme example of this.

The rub is that the published NAV is an estimate with extremely wide error bars. Combine this with the illiquid nature of the CEF itself, and it should trade at a persistent steep discount to published NAV.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by senex »

OP, "what can go wrong" is that starting tomorrow, it could trade at a discount of 50% indefinitely.

There are two major factors at play:
1) As others mentioned, for funds/trusts that hold illiquid assets, the regulatory NAV calculation can vary substantially from any sort of "practical" or "liquidation" price.
2) If there is no conversion mechanism (I don't know whether one exists or not for your fund), there may be no pressure, or even ability, for arbitrage to push the price to NAV.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Lauretta »

ResearchMed wrote: Fri Sep 30, 2022 10:13 am ?

As an [amusing?] aside, the symbol "HVPE" seems a bit too similar to "HYPE" to me... :wink:

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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Logan Roy »

Lauretta wrote: Fri Sep 30, 2022 8:04 am I am considering investing in a Vanguard Private Equity closed end fund.
It is selling at a discount greater than 40%. So I understand that I am paying 60 cents for 1 dollar. It looks like a bargain but I am not famliar with this investment vehicle. Could it stay indefinitely below NAV? Or do they tend to match NAV over time? Anything I should know about closed end funds?
Here's the fund info (it's on the LSE but I am posting the question here in theory since I am more interested in understanding closed end funds in general)
https://www.hl.co.uk/shares/shares-sear ... y-ordinary
I should say it's the company partnering with Vanguard to provide their private equity solutions. Great firm, Harbourvest. Investors in Tesla, Klarna, Coinbase, Discord, Roblox, Zendesk, etc.

First off: you should know everything about closed-end funds before you invest in one. I appreciate you're trying to do that here, but you'd want to read a few books on closed-end funds and private equity to get a grounding. The main problem with not having that grounding is that if you don't really know why you invested in something, you'll probably sell and chalk it up as a mistake when it does something you didn't expect.

One reason Private Equity funds like this are on discounts is because valuations in private markets haven't really started being marked down yet. We'd expect it to happen over the next 2 years. The fact Private Equity NAVs have gone up, when similar (public) tech stocks, etc. have gone down quite a bit, would suggest NAVs probably have to come down at some point.. Also, Private Equity trusts used to be on premiums, prior to the financial crisis, but have generally stayed on discounts since. No one's actually selling $1 for 60 cents, at least not without a fair bit of risk on top.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Lauretta »

Logan Roy wrote: Fri Sep 30, 2022 9:57 pm
Lauretta wrote: Fri Sep 30, 2022 8:04 am I am considering investing in a Vanguard Private Equity closed end fund.
It is selling at a discount greater than 40%. So I understand that I am paying 60 cents for 1 dollar. It looks like a bargain but I am not famliar with this investment vehicle. Could it stay indefinitely below NAV? Or do they tend to match NAV over time? Anything I should know about closed end funds?
Here's the fund info (it's on the LSE but I am posting the question here in theory since I am more interested in understanding closed end funds in general)
https://www.hl.co.uk/shares/shares-sear ... y-ordinary
I should say it's the company partnering with Vanguard to provide their private equity solutions. Great firm, Harbourvest. Investors in Tesla, Klarna, Coinbase, Discord, Roblox, Zendesk, etc.

First off: you should know everything about closed-end funds before you invest in one. I appreciate you're trying to do that here, but you'd want to read a few books on closed-end funds and private equity to get a grounding. The main problem with not having that grounding is that if you don't really know why you invested in something, you'll probably sell and chalk it up as a mistake when it does something you didn't expect.

One reason Private Equity funds like this are on discounts is because valuations in private markets haven't really started being marked down yet. We'd expect it to happen over the next 2 years. The fact Private Equity NAVs have gone up, when similar (public) tech stocks, etc. have gone down quite a bit, would suggest NAVs probably have to come down at some point.. Also, Private Equity trusts used to be on premiums, prior to the financial crisis, but have generally stayed on discounts since. No one's actually selling $1 for 60 cents, at least not without a fair bit of risk on top.
Thanks🙏are there any books you would suggest to get a grounding?
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Lauretta »

senex wrote: Fri Sep 30, 2022 1:09 pm OP, "what can go wrong" is that starting tomorrow, it could trade at a discount of 50% indefinitely.

There are two major factors at play:
1) As others mentioned, for funds/trusts that hold illiquid assets, the regulatory NAV calculation can vary substantially from any sort of "practical" or "liquidation" price.
2) If there is no conversion mechanism (I don't know whether one exists or not for your fund), there may be no pressure, or even ability, for arbitrage to push the price to NAV.
Thanks. Please forgive me if this question is silly because I know very little about these funds. By convertion mechanism do you mean an agreed upon mechanism to transform the closed end fund into for example an ETF? Or e.g. to liquidate it?
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by whodidntante »

I've looked at a few CEFs but bought none of them. They can also trade a premium to NAV, but that is less common.

I'd just steer clear of private equity. You won't be able to get access to the best managers or the best deals. You'll mostly get the longshot or hopeless crap that someone could build a product around to sell to you. Private equity also has wicked volatility, but there is a smoothing effect because the assets are not marked to market. It's a good example of diworsification.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by jw50 »

Does PFIC rule apply to you? (ie Do you need to file US tax return)

If you do, HVPE is NO touch.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by invest4 »

Logan Roy wrote: Fri Sep 30, 2022 9:57 pm
First off: you should know everything about closed-end funds before you invest in one.
+1000

My strong impression is that investing in CEFs are not for the novice and require ones attention.

I don't believe "stay the course" is a rallying cry for the CEF investors?
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Logan Roy »

whodidntante wrote: Sat Oct 01, 2022 3:28 am I'd just steer clear of private equity. You won't be able to get access to the best managers or the best deals. You'll mostly get the longshot or hopeless crap that someone could build a product around to sell to you. Private equity also has wicked volatility, but there is a smoothing effect because the assets are not marked to market. It's a good example of diworsification.
To be a stickler, I don't think that's been the case since Harbourvest has had a CEF available (2010 or so). $100bn AUM. The firm Vanguard's partnering with. Early investors in Tesla, Klarna, Discord, etc. It's a complete institutional-standard PE portfolio.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Logan Roy »

Lauretta wrote: Sat Oct 01, 2022 1:08 am
Logan Roy wrote: Fri Sep 30, 2022 9:57 pm
Lauretta wrote: Fri Sep 30, 2022 8:04 am I am considering investing in a Vanguard Private Equity closed end fund.
It is selling at a discount greater than 40%. So I understand that I am paying 60 cents for 1 dollar. It looks like a bargain but I am not famliar with this investment vehicle. Could it stay indefinitely below NAV? Or do they tend to match NAV over time? Anything I should know about closed end funds?
Here's the fund info (it's on the LSE but I am posting the question here in theory since I am more interested in understanding closed end funds in general)
https://www.hl.co.uk/shares/shares-sear ... y-ordinary
I should say it's the company partnering with Vanguard to provide their private equity solutions. Great firm, Harbourvest. Investors in Tesla, Klarna, Coinbase, Discord, Roblox, Zendesk, etc.

First off: you should know everything about closed-end funds before you invest in one. I appreciate you're trying to do that here, but you'd want to read a few books on closed-end funds and private equity to get a grounding. The main problem with not having that grounding is that if you don't really know why you invested in something, you'll probably sell and chalk it up as a mistake when it does something you didn't expect.

One reason Private Equity funds like this are on discounts is because valuations in private markets haven't really started being marked down yet. We'd expect it to happen over the next 2 years. The fact Private Equity NAVs have gone up, when similar (public) tech stocks, etc. have gone down quite a bit, would suggest NAVs probably have to come down at some point.. Also, Private Equity trusts used to be on premiums, prior to the financial crisis, but have generally stayed on discounts since. No one's actually selling $1 for 60 cents, at least not without a fair bit of risk on top.
Thanks🙏are there any books you would suggest to get a grounding?
For me it was books like The Ivy Portfolio (a great primer) and Pioneering Portfolio Management. There may be better books for explaining CEFs? The only risk of these two is you might get hooked on the endowment style of investing. I think it can work very well for people – but it does necessitate a certain ability to identify good funds, especially in Private Equity and Absolute Return (of which there are very few) – and may overcomplicate things.

I think there's a big unknown over whether simple stock/bond portfolios will continue to deliver over the medium-term, or whether these endowment and All Weather-style portfolios that focus more on diversification and macro (and have often been derided for it) turn out to be better built to withstand less hospitable market conditions. I'm in the All Weather camp.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by vineviz »

whodidntante wrote: Sat Oct 01, 2022 3:28 am I'd just steer clear of private equity. You won't be able to get access to the best managers or the best deals. You'll mostly get the longshot or hopeless crap that someone could build a product around to sell to you.
+1

The only private equity managers worth giving your money to are the ones who won't take it.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Logan Roy »

invest4 wrote: Sat Oct 01, 2022 4:31 am
Logan Roy wrote: Fri Sep 30, 2022 9:57 pm
First off: you should know everything about closed-end funds before you invest in one.
+1000

My strong impression is that investing in CEFs are not for the novice and require ones attention.

I don't believe "stay the course" is a rallying cry for the CEF investors?
I think there are certainly two approaches to CEF investing. One would be to buy primarily for the discount, and sell as it narrows (discount trading). It's a legitimate market anomaly, but requires quite a bit of diversification, attention, market experience, and factoring in costs against discounts and time-frames. My take is there are very brief opportunities when it can work very well – the forced selling when Covid broke put many low liquidity ITs onto >80% discounts, and you could buy them and get these 200-400% returns over 10 months, without buying anything too speculative. And I think these opportunities are even more common with more money in ETFs and index funds, which get sold off fairly indiscriminately.

Or, with high quality portfolios (of which I'd include Harbourvest – taking into account the risk of private equity – and some of the better infrastructure portfolios), I'd say it's more "stay the course", as the discount is more a feature of investing in illiquid assets, and if the underlying holdings are still good value, you probably want to be thinking on a 15+ year horizon. Mean reversion isn't guaranteed, but you do at least get opportunities to buy at discounts we rarely get with high quality assets in public markets.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Jack56 »

The reason for the large discount is that the market does not think that the fund will be able to realize its assets at reported NAV, i.e. the NAV is overstated given current market conditions. The NAV is determined by third party valuation people not the market and it was determined at some point in the past when market conditions were better so there is a time lag with the market measuring the value today and the NAV being a reflection of someone's view as to asset value whenever the valuation was done. There are lots of investment companies investing in private equity that trade at similar discounts -- which suggests that the market thinks that there will be portfolio write downs, i.e. the NAV will be reduced in future reporting periods.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by packer16 »

There are four main reasons why these funds trade at a discount: 1) management fees (in this case 2.5%/year), 2) the number of investors who want to hold what is in the fund in exact proportion is very small, 3) the inability to hedge the discount (go short the positions in the fund to arb the discount) & 4) what the discount will be when you want to sell. These can be offset by high dividends & distributions. This is also a PFIC for US investors which will add to the discount. This CEF pays no dividends so there is no offset here. IMO if you want to invest in private equity just allocate to SCV & add some modest leverage from IB if you choose or invest in one of the PE asset managers who hold positions in PE like KKR, BAM or APO.

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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Lauretta »

Logan Roy wrote: Sat Oct 01, 2022 9:03 am
I think there's a big unknown over whether simple stock/bond portfolios will continue to deliver over the medium-term, or whether these endowment and All Weather-style portfolios that focus more on diversification and macro (and have often been derided for it) turn out to be better built to withstand less hospitable market conditions. I'm in the All Weather camp.
Thanks for the tips. :happy However, if by All Weather you mean the portfolio Tony Robbins suggested based on his conversations with Ray Dalio, I have doubts about it since it's heavy on bonds, particularly LT, and I think Dalio himself says that bonds are terrible right now. Probably all the more so in Europe since yields had been pushed down below zero in many cases.
Probably it's good to add gold and commodities; I have 10% of my liquid assets in gold; I don't have commodities though :( Anyway more than 35% of my assets are in real estate which might hopefully be resilient in an inflationary environment.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Logan Roy »

Lauretta wrote: Sat Oct 01, 2022 10:10 am
Logan Roy wrote: Sat Oct 01, 2022 9:03 am
I think there's a big unknown over whether simple stock/bond portfolios will continue to deliver over the medium-term, or whether these endowment and All Weather-style portfolios that focus more on diversification and macro (and have often been derided for it) turn out to be better built to withstand less hospitable market conditions. I'm in the All Weather camp.
Thanks for the tips. :happy However, if by All Weather you mean the portfolio Tony Robbins suggested based on his conversations with Ray Dalio, I have doubts about it since it's heavy on bonds, particularly LT, and I think Dalio himself says that bonds are terrible right now. Probably all the more so in Europe since yields had been pushed down below zero in many cases.
Probably it's good to add gold and commodities; I have 10% of my liquid assets in gold; I don't have commodities though :( Anyway more than 35% of my assets are in real estate which might hopefully be resilient in an inflationary environment.
Absolutely. The fact that this era's big All Weather proponents have largely abandoned bonds (I did in 2014), and use newer asset classes, like TIPS, might suggest that All Weather is better thought of as a design/concept, and that implementation is always subject to review.

In the UK, we've got Capital Gearing Trust, which is both the best performing Closed-end Fund in the UK, since 1982, and probably one of the best performing All Weather funds, certainly available to retail investors. Same manager since '82. Ticker CGT. I'm very happy with it and the team. It's a long-haul strategy – so it'll drag in bull markets. They do have quite a bit in real estate – but very selective. The real safe haven for them is TIPS. In the second slide, we can see Real Estate didn't do particularly well in the previous period of stagflation. One of the big concerns with UK residential property now is that if rates rise too quickly, we could easily trigger a cascade of mortgage defaults – something CGT noted quite some time ago.

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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by jh »

Lauretta wrote: Fri Sep 30, 2022 8:04 am I am considering investing in a Vanguard Private Equity closed end fund.
It is selling at a discount greater than 40%. So I understand that I am paying 60 cents for 1 dollar. It looks like a bargain but I am not famliar with this investment vehicle. Could it stay indefinitely below NAV? Or do they tend to match NAV over time? Anything I should know about closed end funds?
Here's the fund info (it's on the LSE but I am posting the question here in theory since I am more interested in understanding closed end funds in general)
https://www.hl.co.uk/shares/shares-sear ... y-ordinary
I have owned CEFs before and they can be a good investment. IMHO the best way to use them is to buy in when they have an unreasonably large discount and then trade out of them a year or two later when they recover. Or, you can just keep them as in general they are setup to generate high cash flow.

The reason why people use CEFs is because they can invest in very illiquid assets and not get burned by redemptions as they would in an open-ended fund. Many of them will use leverage as well.

The major downsides with them is they can be illiquid and the fees are generally pretty high. You'll probably be paying an ER of 1% to 1.5% in addition to fees to pay for any leverage.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by jh »

I'll also add that I do own two pure play private equity stocks and several asset managers stocks that also do some private equity. Most asset management companies have some private equity funds now.

The pure play private equity I own are BX and APO. Both are fantastic companies.

https://www.blackstone.com/

https://www.apollo.com/
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by beyou »

Note closed end funds are nothing new, they have been trading for about 100 years. This was a common investment during the 1929 stock market crash !

I worked for 2 firms that used to issue closed end funds.
They are a great deal for the investment manager, money that we received that could not be withdrawn from the fund (sold yes by you, but the assets never leave the hands of those who created the fund). Perpetual income for the asset manager unless they lose $. Many firms have stopped selling closed end funds because of less demand. High fees are not as ignored as they once were to retail investors.

On common thing to look for that makes MANY closed end funds risky is leverage. They tend to borrow to buy more than the assets they have, to magnify returns. They are magnified up and down. I looked up your fund in M*, and while there isn’t much data, it does show they pay interest expense. That is a pretty good indicator they borrow to leverage. Definitely more risky than other equity funds.

I also saw on m* who owns this (major shareholders of hpve). One was an ishares etf that invests in many PE firms.

https://www.ishares.com/uk/individual/e ... -ucits-etf

If one wants PE exposure, something like this may be a more diversified way to do so (buying hpve and many other PE firms such as suggested above). But this is at the cost of another layer of fees (0.75% to BlackRock on top of fees inherent to hpve or other holdings). This fund can be traded in UK and EU, not US.
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Lauretta »

Logan Roy wrote: Sat Oct 01, 2022 3:22 pm [

In the UK, we've got Capital Gearing Trust, which is both the best performing Closed-end Fund in the UK, since 1982, and probably one of the best performing All Weather funds, certainly available to retail investors. Same manager since '82.
Thank you I have watched an interview with Peter Spiller and he seems like an intelligent guy. I will definitely look into investing into this fund. One of the drawbacks for me is that I already have quite bit of Real Estate (which seems to be a part of their portfolio too). For example I was lucky to buy some properties in Cambridge about 30 years ago which really went up a lot (it was basically 100% luck on my part :D .) The other thing is that quite a bit seems to hinge on Peter Spiller's predictions which according to him are not priced in yet, so the investment strategy is based on an active bet and the risk in this context would be that he got it wrong this time.
But probably a good idea to invest some funds into this trust
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by senex »

Lauretta wrote: Sat Oct 01, 2022 1:14 am Thanks. Please forgive me if this question is silly because I know very little about these funds. By convertion mechanism do you mean an agreed upon mechanism to transform the closed end fund into for example an ETF? Or e.g. to liquidate it?
That's right. If there is no way to directly exchange the two things that are "mispriced" relative to each other, then there is no guarantee of profit to someone who attempts to arbitrage the mispricing. If there is no way to profit, then the mispricing is more likely to persist. (With direct convertability, then buying the "cheap" item and selling the "expensive" item serves to both push the prices together AND profit to you, and thus where there is direct convertability, persistent pricing errors are less common).
Logan Roy
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Logan Roy »

Lauretta wrote: Mon Oct 03, 2022 1:41 am
Logan Roy wrote: Sat Oct 01, 2022 3:22 pm [

In the UK, we've got Capital Gearing Trust, which is both the best performing Closed-end Fund in the UK, since 1982, and probably one of the best performing All Weather funds, certainly available to retail investors. Same manager since '82.
Thank you I have watched an interview with Peter Spiller and he seems like an intelligent guy. I will definitely look into investing into this fund. One of the drawbacks for me is that I already have quite bit of Real Estate (which seems to be a part of their portfolio too). For example I was lucky to buy some properties in Cambridge about 30 years ago which really went up a lot (it was basically 100% luck on my part :D .) The other thing is that quite a bit seems to hinge on Peter Spiller's predictions which according to him are not priced in yet, so the investment strategy is based on an active bet and the risk in this context would be that he got it wrong this time.
But probably a good idea to invest some funds into this trust
Yes – well one way I'd put it is that when it comes to asset allocation (stocks vs real estate vs bonds, etc.), there is no true passive solution. So even a 60:40 portfolio of index funds is still an active bet on certain economic conditions prevailing.

So what the All Weather guys are doing (Ray Dalio at Bridgewater, Peter Spiller, Jonathan Ruffer, Sebastian Lyon) is trying to work out what an optimal All Weather portfolio looks like. And they all tend to wind up in reassuringly similar places, with differences in the details. But I'd argue these funds are still *less* active bets against the market than most other portfolios, because All Weather portfolios tend to look a bit more like hypothetical global market portfolios, with less market risk, and much larger allocations to real assets.

I think what's so tricky about this environment is that stocks and bonds aren't safe, and sitting in cash certainly hasn't been safe (with what's happened to the pound). So everyone's trying to find a way to balance risks – knowing that avoiding volatility altogether would be impossible.
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Taylor Larimore
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Taylor Larimore »

Lauretta wrote: Fri Sep 30, 2022 8:04 am I am considering investing in a Vanguard Private Equity closed end fund.
It is selling at a discount greater than 40%. So I understand that I am paying 60 cents for 1 dollar. It looks like a bargain but I am not famliar with this investment vehicle. Could it stay indefinitely below NAV? Or do they tend to match NAV over time? Anything I should know about closed end funds?
Here's the fund info (it's on the LSE but I am posting the question here in theory since I am more interested in understanding closed end funds in general)
https://www.hl.co.uk/shares/shares-sear ... y-ordinary
Lauretta:

In my experience (I'm 98) the surest way to underperform a Total Stock Market Index Fund is to try to beat it.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Attempting to beat the market is a loser's game."
"Simplicity is the master key to financial success." -- Jack Bogle
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Lauretta
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by Lauretta »

Taylor Larimore wrote: Mon Oct 03, 2022 4:08 pm
Lauretta wrote: Fri Sep 30, 2022 8:04 am I am considering investing in a Vanguard Private Equity closed end fund.
It is selling at a discount greater than 40%. So I understand that I am paying 60 cents for 1 dollar. It looks like a bargain but I am not famliar with this investment vehicle. Could it stay indefinitely below NAV? Or do they tend to match NAV over time? Anything I should know about closed end funds?
Here's the fund info (it's on the LSE but I am posting the question here in theory since I am more interested in understanding closed end funds in general)
https://www.hl.co.uk/shares/shares-sear ... y-ordinary
Lauretta:

In my experience (I'm 98) the surest way to underperform a Total Stock Market Index Fund is to try to beat it.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Attempting to beat the market is a loser's game."
Taylor, it's always inspiring to hear from you. :happy Indeed what you say might be happening to me now because I was overweight in European stocks and I recently sold them and bought more S&P 500, I am now worried that it was probably bad timing and that Europe might begin to outperform after all :D If I could go back in time I would probably buy a world Etf instead of cutting and slicing.

Concerning private Equity I think it is consistent with the efficient market theory because we would get the premium due to illiquidity. And since Vanguard ventured into it I am interested in exploring this a bit.
When everyone is thinking the same, no one is thinking at all
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packer16
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by packer16 »

Lauretta wrote: Tue Oct 04, 2022 3:08 am
Taylor Larimore wrote: Mon Oct 03, 2022 4:08 pm
Lauretta wrote: Fri Sep 30, 2022 8:04 am I am considering investing in a Vanguard Private Equity closed end fund.
It is selling at a discount greater than 40%. So I understand that I am paying 60 cents for 1 dollar. It looks like a bargain but I am not famliar with this investment vehicle. Could it stay indefinitely below NAV? Or do they tend to match NAV over time? Anything I should know about closed end funds?
Here's the fund info (it's on the LSE but I am posting the question here in theory since I am more interested in understanding closed end funds in general)
https://www.hl.co.uk/shares/shares-sear ... y-ordinary
Lauretta:

In my experience (I'm 98) the surest way to underperform a Total Stock Market Index Fund is to try to beat it.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Attempting to beat the market is a loser's game."
Taylor, it's always inspiring to hear from you. :happy Indeed what you say might be happening to me now because I was overweight in European stocks and I recently sold them and bought more S&P 500, I am now worried that it was probably bad timing and that Europe might begin to outperform after all :D If I could go back in time I would probably buy a world Etf instead of cutting and slicing.

Concerning private Equity I think it is consistent with the efficient market theory because we would get the premium due to illiquidity. And since Vanguard ventured into it I am interested in exploring this a bit.
Based upon some recent research by AQR, there actually may be a smoothing premium paid by institutional investors for less frequent quotes/sales of private equity assets. So you may be getting less than you would if you bought equities in the market (SCV) & added leverage.

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DesertDiva
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Re: Closed end investment trust at a discount of >40%: looks like a great bargain, what can go wrong?

Post by DesertDiva »

Hmm… an “Average annual charge” of 2.85% — I assume that’s the US equivalent of an expense ratio.
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