Boaz Weinstein: There’s still a market where you can make tons of money, and Wall Street is clueless”

There’s a fortune to be made buying closed-end funds (CEFs). Just don’t tell Wall Street.

CEFs, which raise money through initial public offerings and then trade on public exchanges, just like stocks, total $240 billion in market value right now. But unlike their open-ended counterparts, managers are unable to create new shares to meet investor demand.

To Weinstein, the appeal of CEFs at the moment stems largely from how attractively-priced they are. Following what he describes as some “peculiar dynamics” around the taper tantrum in 2013, investors turned into large sellers, which caused CEFs to trade at a discount over time.

“Although CEF discounts have narrowed in the past year, it’s possible to buy a few dozen of them at an average 10% discount without sacrificing quality,” the Saba founder.

While Weinstein points out that most institutional fixed-income investors haven’t ever owned a CEF, he does highlight some notable fellow bulls. For one, Bill Gross still owns over $140 million of CEFs from Pimco, the giant bond fund he used to run. Weinstein also highlights Jeff Gundlach, who he says has issued CEFs and recommends buying them — but only at a discount, of course.

“It’s a rare corner of the market where retail investors can get an edge over institutions,” he said “Most institutions don’t realize that it is a large enough market to matter to them.”

Source: Bloomberg Pro Terminal

Trader Bozhidar Arabadziev