Welcome to December, when the only thing smaller than the trading volume is the conviction of the traders. If you still want to trade and want the action, then I see no reason to leave either the energy space nor the gold arena. There is plenty of movement and plenty of volume in those arenas. Yesterday on Real Money Pro, I outlined how I would play energy, and I still think that type of setup will be out there for the next few weeks. While gold and the miners have bounced, it does have the feel of continuing these trend day moves.
This time of year is great for reflecting on the good and bad from the past year, or for backtesting strategies to kick off the new year. At this point, I believe we are beyond the vast majority of tax selling, other than on closed-end funds, which can often see some whipsaw moves in the final weeks of the year. Take caution if they sit in your portfolio, or simply ignore them for the next six weeks. I, for one, hate simply ignoring anything. I'll keep an eye on the group to see if we have any unusually wide discounts to net asset value out there. Again, a focus on the energy space would probably behoove bargain hunters.
Two names I'm keeping an eye upon are Blackrock Real Asset Equity Trust (BCF) and First Trust Energy Income and Growth Fund (FEN).
BCF carries ExxonMobil (XOM), Chevron (CVX), and Royal Dutch Shell (RDS.A) as three of its top five holdings. If I'm truly worried about oil and energy, I'm still not worried about those names. While they certainly could struggle, they are three companies that could benefit by picking up cheap assets, if smaller exploration and production (E&P) names go the way of the dinosaur.
BCF sits at a 14% discount, while the year-to-date average is around 12.8%. While that doesn't sound fantastic, comparing the current discount to the five-year average of just below a 5% discount, this is one to watch if the discount creeps a bit wider. Anything into the high teens, and I will be a buyer.
FEN has a smaller discount of nearly 8.4%, but when you take into account the five- and 10- year averages on this closed-end fund, that actually shows it trading at a small premium rather than a discount, it might make you take a closer look. This fund is focused upon master limited partnerships (MLP), so it's very different than BCF. It has a rather low turnover at 25%, which is the same as its leveraged factor. Often, I will find too much leverage or too much turnover in closed-end funds to keep me interested, but I have no problem with these metrics.
There are quite a few funds in the closed-end space, so this requires a little digging and some research for comfort, in my view. Premium or discount aren't the only thing of importance, but these are a solid starting point. Pay close attention to the underlying holdings, as well as the turnover. Factor in the leverage used by management, and also the historical performance of the funds. While many people will talk about the distribution or yield, that is often the lowest thing on my priority list, since it can vanish if there are major issues with any of the aforementioned criteria. Closed-end funds is a space worth a look for a small part of the trading portfolio, towards the end of the year.