THE FIVE PILLARS OF OUR RISK
MANAGEMENT POLICY

1. Diversification

Portfolio diversification is attained by security, and asset class and sector:

By Security

  • We typically hold at least 30–45 separate closed-end funds
  • Favorite holdings do not exceed 10% — traditionally, top holdings are 5% maximum
  • Because each closed-end fund owned typically has hundreds of stocks/bonds on a look-through basis, our portfolio has extreme diversification

By Asset Class and Sector

  • The closed-end funds we invest in own, among others, stocks, bonds, preferred, convertibles, mortgages, REITs, US and foreign-based companies
  • Equity exposure typically ranges between 45%–70% with relentless monitoring to avoid undue concentration

2. Buy and Sell Strategy

Our contrarian investment style — buy/sell what others are selling/buying —reduces our risk of loss as issues we purchase are already highly discounted.


3. Skeptical Analysis of NAV

Our rigorous risk management discipline casts a skeptical eye on fund companies’ statements of NAV. This helps us to eliminate any negative surprises on the stated NAV of a fund in which we decide to invest.


4. Cash Income

We favor closed-end funds that make regular cash distributions. The extra income we receive when we buy discounted securities provides us with the patience to wait for discounts to narrow. Ultimately, we get cash as we wait for the opportunity to generate alpha.


5. Careful News Analysis

News on our current and prospective positions are monitored daily. This often allows us either to get “out in front” of a market-moving announcement (a tender offer, a distribution cut or increase, an activist filing, etc.), or to quickly take advantage of a closed-end fund whose price, in our opinion, overreacted to a particular piece of news.