Using Discounted Closed Ended Funds Created To Increase Earnings And Decrease Risk

Currently focuses on:  Cohen & Steers Select Utility Fund (nyse: UTF)

Its investment objective would be to achieve a higher level of after-tax total return through investment in utility securities. In pursuing total return, the Fund equally emphasizes both current incomes, consisting primarily of tax-advantaged dividend income, and capital appreciation. Under normal marketplace conditions, the Fund will invest at least 80% of its managed assets in a portfolio of common stocks, preferred stocks and other equity securities issued by firms engaged in the utility industry.

The Utility and Electrical industry is forecasted to grow at 8.5% for then next 5 years.*

At present the Cohen & Steers Select Utility Fund is at a 16.89% discount

That means for every $100,000 invested in principle you invest roughly only $83,000.

Making use of regression to the mean* theories believing that  historical mean for US based  closed end funds historically trade at a 5% discount we would forecast Cohen & Steers Select Utility Fund  would increase in principle about 12 percent assuming  no change in the marketplace value.

** Regression to the mean can be a technical term in probability and statistics. It means that, left to themselves, things tend to return to normal levels, whatever that’s.

Cohen & Steers Select Utility Fund has a short but profitable history of developing principle

The current income from this fund is 6.14%

We believe due to the fact you could acquire 100,000 dollars of income producing utilities that produce above 5% earnings or more than $5,000 dollars per yr for around an investment of $83,000. Those how invest with the a lot lower amount of $83,000 still has the same income of above $5,000 giving a very much higher earnings of 6.14%

Performance:

“If you’re patient, buying funds at a steep discount can be extremely lucrative? For instance, suppose you divided the closed-end universe into fifths, starting with the most expensive. The priciest 20 percent gained 48 percent in the past five years. The 20 percent with the steepest discounts, however, soared 160 percent.” ***

To Lessen Risk

With an effort to decrease the risks associated with closed ended funds at deep discounts with high earnings we recommend diversification using many different asset classes and fund families utilizing asset allocation approach.   In our development and earnings model we use 7 different asset classes to provide a balanced portfolio.  This structure was designed to minimize fluctuations.   An event that may well hurt a single class of investments may benefit one more.  Two examples of this is after the 9/11 terrorist attack as well as the 2000 stock market crash.  In both cases the stock market had a tremendous sell off, but the higher grade bonds had very large rallies.  During those two events the stock market and high grade bonds had no correlation.  Many experts believe diversifying between non-correlated asset classes could be the single best way to lessen volatility risk.

When building  portfolio’s we use a selection criteria that focus on: unique asset classes, deep discount , high yield, consistency of payments, ongoing fee’s and other factors we incorporate into the selection are, past track record with the fund, and past track record with the management team, and of course the management team. We apply our selection criteria to above 600 closed ended funds having a goal to find only 1 or 2 in each asset class that fits our needs.

Simply don’t put all your eggs in 1 basket.  If the assets classes are non-correlated this reduces the portfolio risk.

To summarize Cohen & Steers Select Utility Fund:

1) A conservative industry
2) Diversifies investments inside the utility industry
3) An industry forecasted to grow at 8.5%
4) Investing at a 16.89% discount
5) Receiving a 6.14% current income
6) Regression to the mean would indicate principle development of about 12% with no marketplace change.

We forecast Cohen & Steers Select Utility Fund to achieve industry growth rates plus regress to a more historic means these two combined events would indicate a total return of 10.9% percent per 12 months over the next 3 to 5 years.

Randy Durig manages several Portfolios’ including the Development & Earnings Portfolio to see the full list go to www.durig.com or www.money-manager.us

Randy Durig owns Cohen & Steers Select Utility Fund in his discretionary client’s portfolios and in his personal account. Past performance is not a guarantee for future returns. All information we believe to be correct but make no guarantee to accuracy.

Durig’s Monopoly Blue Chip Portfolio National Performance Rankings: 3rd In the United States, Ranked by 3 12 months annual return, for Large Capitalization Blend, 4th Quarter 2005, By Funds Manager Review.

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