STOCK OF THE WEEK - MAY 15, 2006
Nicholas-Applegate Int’l & Premium Strategy Fund (nyse: NAI)
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Jack Colombo, editor of the ISA ETF Investor, recommends buying the Nicholas-Applegate International Premium & Strategy Fund (nyse: NAI), a closed-end fund that invests in international equities and enhances total return by writing covered calls to generate income.
The fund came to market just over a year ago on April 27, 2005 with a net asset value (NAV) of $23.88 and an anticipated yield of 9.00%. As of Friday, May 12, 2006, the market price of the fund’s shares rose 7.56% and the fund paid out $2.15 per share over the past 12 months. Based on the trailing twelve months’ of payout, the current yield of the NAI is 7.99%.
The NAI belongs to a new class of closed-end funds that use a buy-write strategy to enhance its returns to shareholders. The buy-write strategy involves selling near- or out-of-the-money call options on the common stocks in their portfolio.
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“The buy-write strategy has been back tested against the S&P 500 Index and results show a small increase in overall return, but a large reduction in volatility,” says Colombo. “The typical ETF is created to mimic a particular index and the Nicholas-Applegate International Premium & Strategy Fund is an oddity in the closed end fund universe because it attempts to mimic an ETF, specifically the iShares MSCI EAFE Index (amex: EFA).”
Although the NAI is designed to track the MSCI EAFE Index, the closed end fund has a few significant advantages, says Colombo. “Chief among them is that you can own the fund at a 11.2% discount to its $30.30 net asset value,” noting that the value of the fund’s investments exceeds the per share price.
“In addition,” says Colombo, “since the net asset value has only recently appreciated to $30 due to weakness in the U.S. dollar, it is possible that the fund’s distributions will be increased as well.”
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Another positive is that the fund may likely generate more income by selling calls on its higher net asset value portfolio. Also encouraging is the strong performance of the underlying ETF, the iShares MSCI EAFE Index. The EFA is up 34% in the past year, and up nearly 11% year-to-date.
As a way to generate portfolio income and to play the continued strength of international markets, Colombo recommends buying NAI at current prices.
Click here for more ETF and closed-end fund recommendations and updates from Jack Colombo, and to learn more about subscribing to ISA ETF Investor.
Quelle forbes
NAI Nicholas-Applgt Intl & Prm Str (NYSE) Delayed quote data 5/16/2006 1:53 PM
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Last:
26.94 Change:
+0.16 Open:
26.78 High:
26.97 Low:
26.77 Volume:
27,200
Percent Change:
+0.60% Yield:
7.98% P/E Ratio:
n/a 52 Week Range:
22.16 to 27.52
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