There's been a lot of talk over the past few years about the benefits of investing in Exchange Traded Funds ("ETFs"). Financial writers and advisors tout their tax efficiency, low cost, and instant diversification as several reasons to buy.
Unfortunately, there are a number of market segments for which no good ETFs currently exist. Those include some emerging foreign markets such as Russia and India. Both Russia and India are supposed to be two of the fastest growing economies over the next several decades. It would be nice if there was an ETF that would invest in stocks in each of these countries. Unfortunately, acording to
ETFconnect, there is no such ETF right now. However, there are a couple closed-end funds investing in each of these markets.
The best Russian stock market closed-end fund that I've found is the
Templeton Russia and East European Fund (ticker symbol: TRF). This fund has been around since 1995 and returned an annualized 20.10% for the 10-year period ending on 10/31/05. However, this fund is not for the faint of heart - although it has had huge gains, such as in 1999 when it gained 133.57%, it has also had huge losses, such as in 1998 when it lost 74.65% when Russia had a currency crisis.
The best Indian stock market closed-end fund that I've found is the
Morgan Stanley India Investment Fund (ticker symbol: IIF). This fund has been around since 1994 and returned an annualized 19.09% for the 10-year period ending on 10/31/05. However, this fund is also very volatile - it returned 144% in 1999 after losing 11% and 14% in 1997 and 1998, respectively.
As with all closed-end funds, these do charge higher fees than most ETFs - usually over 1% of assests. Moreover, closed-end fund can also trade at a discount to their underlying net asset values.
***Update - August 7, 2007***Since I wrote this article back in 2005, a low cost Russia stock market ETF and an India stock market ETN have been introduced. I discussed both the Russia stock market ETF and the India stock market ETN in 2007 posts.
As I have discussed previously, closed end funds almost always trade at a discount or premium to their NAVs. The vast majority of closed end funds trade at a discount to their NAVs. TRF is one of the rare ones that typically trades at a premium. Between the start of 2007 and February 28, 2007, TRF's premium dropped from 38.07% to 8.85%, a drop of nearly 30%, as shown below.
I suspect that most of the compression in TRF's share price is over. TRF has typically traded at a premium of around 10-15% over the past few years and I see no reason as to why this trend will be broken now.
