High Yield and Low Risk Through Investing in Closed-end Mutual Funds: A Wall Street Transcript 2013 Top 10 Interview with Jonathan S. Raclin, Managing Director of The Enterprise Portfolio

Wall Street Transcript

67 WALL STREET, New York - December 11, 2013 - The Wall Street Transcript has just published its Top Ten Portfolio Manager Interviews of 2013 Report. This special feature contains expert industry commentary through in-depth interviews with highly experienced Portfolio Managers with significant Assets Under Management. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Top Ten Portfolio Manager Interviews of 2013

Companies include: Convertible Bond Funds, Diversified Closed End Funds trading at a significant Discount to Asset Value, BlackRock, Inc., Synovus Financial Corp. and many others.

In the following excerpt from the Top Ten Portfolio Manager Interviews of 2013 Report, an experienced portfolio manager discusses his methodology for minimizing risk and maximizing return for his investors:

TWST: You advise separately managed accounts using the Enterprise Portfolio as a template for portfolios comprised of closed-end mutual funds. What factors are important to you when you put together a portfolio?

Mr. Raclin: I opened the advisory business in 2000 emphasizing three things: client portfolios were to be broadly diversified; secondly, as I had - or have - little confidence in anybody's - including my own - ability to consistently and correctly evaluate whether a particular investment was expensive or cheap, I used a somewhat unique structure of restricting my investments to closed-end funds.

A closed-end versus the more commonly known open-end fund has a fixed amount of shares, a security which is a stock listed on an exchange representing ownership of an underlying portfolio. The stock may trade at a premium, infrequently or at a discount to the net asset value of the underlying portfolio. It is an objective, market-based versus some individual-opinion-based valuation metric. It has been a great indicator as to possible opportunity and/or potential danger.

The third imperative was that dividends/distributions are a critical part of an investor's return.

I identified a number of different funds ran by people who I had known or known of for many years, specialists in a variety of investment areas. My clients are better served with access to such expertise as opposed to my claiming an ability to be knowledgeable in so many areas. Such expertise would be very surface at best.

TWST: What are the risks of investing the way you do in closed-end mutual funds?

Mr. Raclin: Closed-end mutual funds are generally owned by investors. In an investment world often dominated by high-frequency traders and hedge funds, closed-end funds can have an unpleasant volatility during periods of uncertainty. Investors are not always in the marketplace awaiting an opportunity while traders often try to take an advantage of a lack of liquidity.

Perhaps one of the best examples was when Lehman Brothers and Bear Stearns went out of business, two firms that were very important factors in the convertible securities market. When the government said funds could not short a bank stock, hedge funds had to buy back various positions and sell the "hedge," the convertible bonds. Because Bear Stearns and Lehman Brothers were the primary market makers for many of these convertible securities, the market took a pretty significant shellacking. However, it was a very short-term problem and offered many investors an exceptional opportunity. You just had to be paying attention.

Closed-end funds, if properly diversified across a number of different industries, tend to insulate you from individual company risk. Additionally, if you concentrate on funds selling at a significant discount, you gain a margin of safety.

TWST: What traits do you like to see in funds when you are putting together a portfolio?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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