Investors seeking to purchase the Guggenheim Strategic Opportunity Fund (GOF) are facing a 27% premium, a price that is considered to be in the nosebleed valuation territory. While the fund has delivered solid yearly returns of 9.8% since its inception, buying at such a high premium is seen as a risky move. The closed-end fund (CEF) commands a premium when investors rush to own the fund, which has been a common occurrence for GOF over the past decade.
Buying GOF at a steep premium is usually seen as a bad move, as the premium tends to disappear eventually. Instead, patient investors can wait for mini panics or discounts to purchase the fund, which provide optimal entry points. Contrastingly, those buying at a premium today could face a 27% price loss between now and the next panic, while those who wait for discounts can benefit from high yields and potential price appreciation.
Another CEF trading at a 27% premium is the PIMCO Corporate and Opportunity Fund (PTY), which is also considered to be a risky purchase at this valuation. Investors who insist on investing in PIMCO funds could look at options such as the PIMCO Dynamic Income Opportunities Fund (PDO) or the PIMCO Access Income Income (PAXS) which offers better deals and yields. It is currently a frothy time in the CEF market, with many good funds trading at high prices.
One example is the Calamos Dynamic Convertible and Income Fund (CCD), a fund that has experienced a premium of 20%. The fund, which trades at a high valuation due to its popular income strategy involving convertible bonds, may be overpriced for current buyers. However, during the next big pullback, it is likely that the fund will trade at a discount again, potentially leading to a fast 20% downside potential. Patients investors may benefit from waiting for discounts to purchase these funds at more reasonable prices.
Overall, investors looking to purchase CEFs such as GOF, PTY, and CCD are advised to be cautious and consider waiting for discounts before making a purchase. The current premiums on these funds may expose investors to a high downside risk, making it crucial to practice patience and strategic buying. With a frothy market in the CEF sector, prudent investing is required to ensure long-term success and positive returns.
