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"A winning strategy." If I'm doing the math right, that's stunning volatility for a 7.6% gain over 18 months?This should have been a great year for contrarian investors. The 50 stocks in the S&P 500 that fell the most last year lost an average of 31%, then rebounded a startling 56% this year. Simply buying the losers at the end of December was a winning strategy.
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It's easy ex-post.
Might also enjoy the film Whiplash.
The excerpt in isolation is a bit confusing: "This should have been a great year" for contrarians. The wording suggests that the past 18 months (ending June 30th) was not great for value. Yet the 7.6% figure for IVE indeed blows away the S&P 500 index (VFIAX proxy) return of -4.3%.
The point of the full article is that value (or growth) is not well defined, and performance figures vary depending on how value is defined. Bill Miller's Legg Mason Value owned growth companies when he felt they were value plays (undervalued).
A value strategy not mentioned in the article, dogs of the dow (highest yielding stocks), when applied to the S&P 500 (SDOG) shows very different results - nearly flat (small losses) in 2022 (-0.13%) and YTD through June 2023 (-0.84%). (Data from ALPS; M* figures slightly different.)
Despite its superficial stability, SDOG was 10% more volatile (std dev) than IVE over the past 18 months, per Portfolio Visualizer.
https://corporatefinanceinstitute.com/resources/capital-markets/2-and-20-hedge-fund-fees/
CEF fees are not all that different from actively managed OEF fees. https://www.kiplinger.com/slideshow/investing/t041-s001-cheap-cefs-7-closed-end-funds-unusually-low-fees/index.html
(2019 data)
Fidelity appears to think that CEF fees are often deceptively presented. From linked article: “Don’t Be Fooled” / Expense ratios: Seeing through the obfuscation
https://www.fidelity.com/learning-center/investment-products/closed-end-funds/expenses
“All CEFs must report their expense ratios according to a formula set forth by the Securities and Exchange Commission. The expense ratios are expressed as a percentage of average net assets. Most leveraged CEFs levy management fees against total assets, not just net assets, though this is not considered a best practice. Doing so results in higher management fees.
“A management fee of 0.50% on a $500 million unleveraged fund is $2.5 million. If there is an additional $250 million in leverage, the fund provider can rake in an additional $1.25 million. The argument that it would cost more to manage a $750 million leveraged portfolio versus a $500 million unleveraged fund does not hold water. Investment management is a highly scalable business, meaning higher assets under management do not mean higher costs. Because such funds levy fees against total assets but must report expense ratios against net assets, their expense ratios are typically relatively high.”
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Below, I’ve linked the “Fact Sheet” for one of Nuveen’s CEFs just as an example.
Nuveen High Income Global CEF: https://documents.nuveen.com/Documents/Nuveen/Viewer.aspx?uniqueId=baeb8b15-0bb3-4a69-970d-37500c25609d
Looking at the stated fees: 2.96% Total fund / 1.96% Shares
I gather by that that the lower 1.96% relates to both the money you invest plus the borrowed money (leverage) the fund employs. Of course, the fee would appear lower if the leverage is included in the sum. But, if viewed just from the standpoint of what you invested (and actually own) the fee is closer to 3%.
@msf - Thanks for the Kipplinger article. Features some of the best “low cost” CEFs. Most are under 1%. Some great returns. The ones I’ve explored are considerably more expensive than those covered in article. Albeit, I’ve looked mainly at ones using leverage, investing in lower rated credit and some of them engage in short selling which adds to cost.
Of course, the CEF industry didn't like this. It has remained tiny in AUM due to complexity, and now this ER burden. A compromise has evolved in that the CEFs can make alternate presentations along with the SEC required disclosure; but if only one is presented, then that must the SEC required ERs. A common way has been to separate out the portfolio management fees and say that is what should count to investors in comparison with the ERs; the rest are just operational costs. Another is what Nuveen has done - to present the ER on Total fund (common + leverage) but that is less meaningful for CEF holders (yes, it is more meaningful to Nuveen only).
Fund evaluators such as M* don't fall under the SEC regulations. So, M* has been doing whatever its wants - at one time, it presented only the portfolio management fee on the Quote page. But as it has developed its own advisory and portfolio businesses that are subject to the SEC oversight, it has grudging moved the CEF ER info on the Price tab, and uncontroversially, it shows the CEF ERs in both ways, the SEC way, and its way.
CEF Connect (run by Nuveen) https://www.cefconnect.com/fund/JGH
Nuveen https://documents.nuveen.com/Documents/Nuveen/Default.aspx?uniqueId=baeb8b15-0bb3-4a69-970d-37500c25609d
M* https://www.morningstar.com/cefs/xnys/jgh/price