FA NORTH AMERICAN COVERTIBLES FUND T.NCD.UN

NCD undervalued

[stitch1956]

In reply to zien's informed post, I can only conclude that we are witnessing an inefficient market at work. In particular, the warrants make no sense--they allow you to purchase the stock at below market value and provide the time value gratis. The idea of shorting the stock and buying the warrants is appealing but the volumes don't really make it worth while. I think a lot of the undervalue is related to the public's lack of knowledge of both the unit trust market and the closed end mutual fund market. A broker or a typical retail investor will buy the Bisset or Merril Lynch open end trust funds--the broker gets a commission and trailers that way and the retail investor gets a fund he can look up in the mutal fund section. Really, there is not much incentive for a broker to push NCD. Having said that Citidal sells right at or over its NAV and has a very similar profile to NCD. My guess is that the buyers of closed end funds are relatively sophisticated and have bought the warrants instead of the stock--after all there is no downside and a free option involved. That's my guess and I remain perplexed but resolute with this investment. Also, as an aside, it seems to me that the market has totally forgotten about the beneficial tax treatment of trusts--unit values didn't even budge when the new capital gains tax was announced, nor when rates dropped! I think trust units will eventually be recognized as a third asset class, as they have both bond and equity characteristics.