Openings in Closed-Ends
The Morgan Stanley Global Opportunity Bond Fund has more than a few fans. The closed-end fund, which invests roughly 50% in emerging- markets debt and 50% in U.S. junk bonds, is selling at a premium to net asset value of over 50%.
Many funds, which invest in emerging markets and high-yield junk bonds, sell at a premium to net asset value because their yields are high and investors, more than ever, are craving yield.
Yet both the Morgan Stanley Emerging Markets Debt Fund and the Morgan Stanley High-Yield Fund are selling at discounts of greater than 7%.
David Tepper of San Francisco-based Tepper Capital Management, a specialist in closed-end funds, says investors could be purchasing the Global Opportunity Fund thinking that it is a true "global" bond fund.
Indeed, the Global fund has only $34 million in assets, while the Emerging Markets and High Yield funds have $229 million and $85 million, respectively. Therefore, it wouldn't take much to move the Global fund because of its small market capitalization. That said, by buying shares of Morgan Stanley's Emerging Markets Debt Fund and the High-Yield Fund, an investor can replicate Morgan's Global Opportunity Bond Fund's investment portfolio for 60% less, says Tepper.
He adds: "This is the most logical, pure arbitrage opportunity you can find, where the whole is selling for way more than the sum-of-the-parts."
Tepper suggests being long MSD and MSY, versus being short MGB. Morgan Stanley declined to comment.
I am quite certain I have placed trades for Mr. Tepper back in my days as a trader. We had an advisor named David Tepper call in to our desk regularly, if it is the same David Tepper I doubt he would remember me.
Barron's Electronic Trader column had not blogs mentioned for the second week in a row. I hope they haven't given up on us.
2 comments:
MGB is now selling at a 51.7% premium to NAV. The clueless writer of that article doesn't realize the only reason it has hit a new high everyday since January 11 is its on the SHO threshold list and a naked short squeeze is in progress. If and when the shorts cover expect that stock to drop like a rock back to the premiums its peer group has. I would short it myself but then I would be caught in the squeeze.
http://www.nyse.com/Frameset.html?displayPage=/threshold/
I believe the previous commentor is spot-on. Even aside from that, it was unclear to me why the author of the article suggested that the "arbitrage" play was to go long the slightly discounted funds, rather than short the wildly overvalued one. Clearly, something wacky is going on to have a 50% premium to NAV in a single fund; does he expect to wackiness to spread to the other funds? Roger, have you ever seen that kind of premium to NAV before in a CEF? IF so, what were the circumstances? and how long did it last and how rapidly did it come crashing down?
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