For investors who like a wild ride now and then to spice up their investment lives, closed-end country funds have served the purpose memorably in 1997.
Consider the Templeton Russia Fund, which soared from just above $20 late in 1996 to $64.75 in July, but has since tumbled back to the mid-$30s.
Or check out the Thai Fund, which tripled in the late 1980s and nearly did so again in 1993. It has fallen about 60 percent this year, trading lately around $8 compared to a peak four years ago of $37.75.
Show those numbers to any naysayers who tell you investing in funds is too stodgy for their tastes.
But then, country funds never were an ordinary breed of investment company. They own portfolios that are diversified among companies, but concentrated in a single nation or region of the world.
As Mayree Clark, global research director at the investment firm of Morgan Stanley, Dean Witter, Discover & Co., observed, “volatility in international markets can be heart-wrenching - or spell opportunity for investors.”
While there are many broadly diversified international investment companies organized as standard open-ended mutual funds, most funds focused on single countries or groups of countries beyond U.S. borders are set up as closed-end funds.
This means that, unlike open-end funds, they do not stand continuously ready to issue new shares as buyers appear, or to redeem existing shares that investors wish to cash in. Instead, they sell a fixed number of shares at the time of their original offering, which then can be bought and sold in the secondary market, like the stocks of industrial companies.
The shares of the Templeton Russia, Thai, and Brazil funds all trade on the New York Stock Exchange, along with dozens of others specializing in venues from the Philippines to Scandinavia.
Set up this way, shares of closed-end funds can sell at prices above or below the net asset values per share determined by their portfolio holdings. So investors need to keep an eye on the premiums or discounts to NAV incorporated in closed-end funds’ prices at any given time.