This month the investment idea I want to explore is a small Closed End Fund that I’ve mentioned at least once before — the Swiss Helvetia Fund (SWZ).
This is a closed end fund, meaning that it trades like a stock and it has a set number of shares. Closed end funds can invest in just about anything, like regular mutual funds, and, also just like regular mutual funds, they are actively managed and charge a management fee to the fund that is expressed as a percentage of assets. Unlike regular mutual funds and most ETFs, though, closed end funds often trade at a price that’s very different than the current value of the assets held in the fund.
That is the case with the Swiss Helvetia Fund right now — it currently trades at about a 16% discount to the underlying value of the stocks and cash in the fund, based on the closing price on February 17 (the underlying assets have been going down since, as has the share price, so that discount is probably still close to accurate). This discount is fairly typical of their recent history, it’s not “new.”
And unlike many closed end funds, the holdings in this one are pretty concentrated and publicly traded, and quite easy to understand. That means you end up with a portfolio of very liquid, well-understood assets that you can buy for about 85 cents on the dollar. In my opinion, that makes this worth a look for long term investors.
There are many folks recommending various closed end funds right now — but in the main, the funds that you’ll often see recommended now are those that are designed for high current income, funds of corporate or municipal bonds or preferred stocks, or funds that use significant leverage to ramp up their returns and pay large dividends. Some of those may well be fine, too, though you do have to be careful about those that are funded with auction rate securities or other debt facilities that have restrictive covenants, but this one is in a separate category — the dividend yield is average, and the fund is not levered, this is not an income investment. Current yield is a bit over 3%, just about what would be expected based on the dividends paid by the fund’s major holdings Nestle, Roche, and Novartis.
But due in large ...