1 XVII. Closed End Mutual Funds
Dec 17, 2015
2
Total Assets (Millions)
1993 $118,793
1994 $113,285
1995 $135,668
1996 $142,299
1997 $148,981
1998 $152,962
1999 $142,807
2000 $136,882
2001 $139,702
2002 $156,394
5 Yr Annual Growth 0.98%
5 Yr Annual Growth
in Domestic Stock 3.65%
6
UNREALIZED CAPITAL GAINS
MANAGEMENT FEES
TRANSACTION COSTS
POOR MANAGEMENT PERFORMANCE
DIFFERENCES IN SYSTEMATIC RISK
SMALL INVESTOR SENTIMENT
7
Expense Ratios
Closed Open
All 1.30 1.33
All Domestic 1.17 1.32
All Foreign 1.75 1.79
All Bond 1.15 1.07
All Stock 1.72 1.53
Domestic Stock 1.57 1.41
8
Turnover
Closed Open
All 64 96
All Domestic 73 91
All Foreign 44 109
All Bond 79 110
All Stock 32 83
Domestic Stock 66 84
9
1. Chopra, N., Lee, C., Shleifer, A., and Thaler, R.H. 1993. “Yes, Discounts on Closed-End Funds are a Sentiment Index.” Journal of Finance 48 (June): 801-808.
2. Chopra, N., Lee, C., Shleifer, A., and Thaler, R.H. 1993. “Summing Up.” Journal of Finance 48 (June): 811-812.
3. Lee, C., Shleifer, A., and Thaler, R.H. 1991. “Investor Sentiment and the Closed-End Fund Puzzle.” Journal of Finance 46 (March): 75-110.
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SMALL INVESTOR SENTIMENT STORY
1. SMALL INVESTORS INTRODUCE ADDED RISK TO STOCKS THEY OWN. THIS BECOMES SYSTEMATIC FOR SECURITIES THEY OWN.
2. PARTICULARLY IMPORTANT FOR CLOSED END FUNDS BECAUSE THEY ARE OWNED BY SMALL INVESTORS.
3. DISCOUNT AND CHANGES IN DISCOUNT ARE CAUSED BY SMALL INVESTOR SENTIMENT.
4. CHANGES IN DISCOUNT CAN BE USED TO MEASURE SMALL SENTIMENT RISK.
5. CLOSED END FUNDS SELL AT A DISCOUNT BECAUSE THEY ARE SUBJECT TO HIGH SMALL INVESTOR SENTIMENT RISK.
11
SENTIMENT AND THE RETURN GENERATING PROCESS
SENTIMENT AND EXPECTED RETURNS
DISCOUNTS ON CLOSED END FUNDS AND EXPECTED RETURNS
13
For each fund
s
sss Value Asset Net
Price MarketValue Asset NetX
100
funds all
funds all
F Value Market
F Value MarketX
Sentiment
No funds first 6 months of existence
SentimentEFD
14
CANDIDATES FOR ADDITION TO 1 INDEX AND 4 INDEX MODEL
1. CLOSED END FUND CHANGE IN DISCOUNT
2. FOUR DIFFERENT INDUSTRY SAMPLES CHANGE IN DISCOUNT (LARGEST INDUSTRIES WITH ONLY FIRMS WITH HIGHEST INSTITUTIONAL OWNERSHIP)
3. CLOSED END FUNDS RETURNS
4. FOUR INDUSTRY RETURNS
15
RETURN GENERATING PROCESS – SAMPLES
SECURITIES
1. 586 INDUSTRIAL STOCKS
2. 99 UTILITY STOCKS
PORTFOLIOS
1. 287 MUTUAL FUNDS
2. 10 SIZE PORTFOLIOS
3. 28 SIC INDUSTRIES
20
0
0
P
PDPR II
I
0
011
N
NDNRNAV
1
111 N
PNd
0
11
0
11 1
111
P
dD
d
dRR NAV
0
111 P
dDRERE NAV
(3)
(4)
(5)
(6)
(7)
22
sizeln..LS 19108561
95402 .R
Book
Market70.3255.VG
8902 .R
icePr
Dividend 434.3255.0bond
95% payout for tax payers
Market to book stocks held = 3.9 Market to book of funds = 0.9
Average size of stocks held = 5,572 MIL Size of fund 343 MIL
23
CONCLUSIONS
1. CHANGES IN THE DISCOUNT OF CLOSED END MUTUAL FUNDS ARE NOT A SYSTEMATIC INFLUENCE THAT IMPACT THE RETURN OF SECURITIES OR PORTFOLIOS OF SECURITIES.
2. EITHER SMALL INVESTOR SENTIMENT IS NOT A SOURCE OF RISK OR THE CHANGE IN THE DISCOUNT ON CLOSED END FUNDS IS NOT RELATED TO SMALL INVESTOR SENTIMENT.
3. THE DISCOUNT ON CLOSED END FUNDS CANNOT BE EXPLAINED BY SMALL INVESTOR SENTIMENT.
4. THE DISCOUNT CAN BE EXPLAINED BY SOURCES OF RISK THAT ARE WELL ACCEPTED IN THE LITERATURE OF FINANCIAL ECONOMICS.