How to Buy the World's Cheapest Market... at a Double-Digit Discount
By Dr. Steve Sjuggerud
Friday, May 1, 2009
Russian stocks have just been obliterated...
The net asset value of the Templeton Russia Fund (TRF) is down more than 70% in less than a year. The average stock in the fund is selling for less than four times earnings – that's practically a giveaway price.
But since its March lows, the stock price of the Templeton Russia Fund has doubled... it's in a clear uptrend.
In short, Russia is now the cheapest stock market in the world... It's absolutely hated and ignored by investors, who are terrified of risk right now... And it is in a rip-roaring uptrend. You should consider getting in...
But you shouldn't buy the Templeton Russia Fund.
You see, the fund is trading at a ridiculous 50% premium to the stocks it holds. Why would anyone pay a premium for this fund? Why does this premium exist?
The Templeton Russia Fund is what's called a closed-end fund. The fund can actually trade at a premium or discount to the shares it holds. There are only a fixed number of shares outstanding. So if more people want to buy it than sell it one day, the fund's price will rise – even if the value of the underlying stocks the fund holds stays the same.
It's ridiculous to pay a huge premium to own Russian stocks when you don't have to...
Other closed-end funds out there have at least half of their portfolios in Russian stocks. And right now, they trade at double-digit discounts to their net asset values... Shares of the Morgan Stanly Eastern Europe Fund (RNE) sell at a 9% discount. The Central Europe and Russia Fund (CEE) goes for a 14% discount.
So if you want to buy the world's cheapest market, you're better off buying it at a double-digit discount through CEE or RNE than paying 50% more than you should to get into the Templeton Russia Fund.
If CEE returns to net asset value, you'll make a double-digit profit on top of whatever gains you get from the underlying stocks. You don't have to get too crafty with a strategy like this, and there are huge profits to be had...
In my newsletter, True Wealth, we took advantage of a ridiculous discount on a closed-end fund just a couple months ago. We bought it at a discount near 40%... In less than 90 days, it went to a 50% premium. It was quite an extraordinary gain – particularly when the underlying value of the fund actually went down during that time.
I typically just buy closed-end funds holding stocks I want to own anyway, waiting until they sell at a larger-than-average discount. If that's getting too fancy, then you can just buy something you already want to buy, at a cheaper price, through a closed-end fund.
Like I showed you above, you can get exposure to Russia – the world's cheapest stock market – at a double-digit discount through shares of CEE.
Good investing,
Steve
P.S. The easiest way to find funds trading at significant discounts or premiums is through www.ETFconnect.com. Click on Fund Sorter, and then sort by premium or discount. You'll amazed at the size of the discounts and premiums it'll uncover...
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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A HUGE DEVELOPMENT IN THE INTEREST-RATE DEPARTMENT
Read investment advisories for more than one day, and you'll come across this "big picture" view: "America is spending way more than it is earning... its government is bankrupt. Eventually, the world is going to wake up and demand much higher rates of interest before it will loan us more money."
This big picture has a big trade to go along with it: The market offers several trading vehicles that make you money if deadbeat Uncle Sam gets pressure from its lenders. The most popular carries the symbol TBT. This fund soars when interest rates soar.
For much of the past five years, betting on the bankruptcy of Uncle Sam by speculating on higher borrowing rates has been a loser's game. It's near-impossible to make money speculating on interest rates... It's a market that makes fools of even the best traders and analysts.
Still, we have to point out a huge development in TBT's behavior lately. The fund "broke out" to a six-month high this week. We're watching this one closely. The funny-money printing crew in Washington might have finally hit the wrong lever... and Uncle Sam's creditors are starting to ask for higher rates of interest.
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U.S. stocks are poised for the biggest monthly gain in nine years as companies from Wells Fargo & Co. to Marriott International Inc. and Ford Motor Co. beat profit estimates, spurring speculation the recession is easing.
Wells Fargo and American Express Co. reported first-quarter earnings that exceeded the average analyst forecast by more than 70 percent, propelling financial stocks in the Standard & Poor's 500 Index to a record monthly advance of 23 percent. Almost 70 percent of companies in the measure topped projections, the highest since the end of 2006.
The S&P 500 has soared 9.5 percent this month for the steepest rally since March 2000.
– Bloomberg
Home loan applications fell last week to the lowest level since mid-March, driven by a big drop in refinancing demand even as mortgage rates clung to record lows, according to the Mortgage Bankers Association on Wednesday.
"Home sales are dismal," said Chuck Dannis, president of Crosson Dannis, a real estate appraisal and consulting firm in Dallas. "We've got to figure out how to get the offense back on the field. It doesn't appear at this time that just simply low interest rates are going to do that."
Average 30-year mortgage rates dropped 0.11 percentage points to 4.62% last week. The rate nearly matched the all-time low of 4.61% set in the week ended March 27 and was well below 6.01% a year ago.
– Reuters
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