A Strategy for Losing Money


Investor-UpdateI can give you a name of a fund trading with the equivalent of a 23% sales charge. It’s actively managed by a company that’s incurred large outflows from its signature mutual fund following the departure of its star chief investment officer. Interested in owning it?

You probably aren’t, but some investors were. PIMCO’s Municipal Income Fund (PMF), a closed-end fund, traded at a 23.4% premium to the underlying value of its net assets last Friday. Put another way, some investors were paying $1.23 for $1.00 worth of net assets. One doesn’t have to know much about investing to realize this isn’t smart.

PIMCO Municipal Income Fund wasn’t the only offender. Eight other closed-end muni bonds funds ended last week with premiums of 10% or more. In comparison, the average closed-end bond fund traded at a 2.32% discount (meaning investors paid just under $0.98 for every dollar of assets), according to the Closed-End Fund Association (CEFA). The average stock closed-end fund traded at a 7.49% discount.

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Optimism jumped, staying above 30% on consecutive weeks for just the second time since last November. More about this week’s results.

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The Week Ahead

The earnings calendar will be dominated by mega-cap companies. In total, more than 90 members of the S&P 500 are scheduled to report. Included in this group are 10 Dow components: International Business Machine (IBM) on Monday; Goldman Sachs Group (GS), Johnson & Johnson (JNJ), Microsoft Corp. (MSFT) and UnitedHealth Group (UNH) on Tuesday; American Express (AXP) and Intel Corp. (INTC) on Wednesday; Travelers Companies(TRV) and Visa (V) on Thursday; and General Electric (GE) on Friday.

The week’s first financial reports will be the July housing market index, released on Monday. Tuesday will feature June housing starts. The July Philadelphia Federal Reserve’s business outlook survey and June existing home sales will be released on Thursday. Friday will feature the release of the July purchasing managers’ index (PMI) flash.

The Treasury Department will auction $13 billion of 10-year inflation-indexed securities (TIPS) on Thursday.

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