Enervest Diversified Income Exchange Traded Fund (EIT.UN-T) Is Trading At A 20% Discount to Net Asset Value

Enervest Diversified Income Exchange Traded Fund (EIT.UN-T) Is Trading At A 20% Discount to Net Asset Value.

At the close of trading on December 27, 2007 the units of this exchange trade fund closed at $5.23. Meanwhile its Net Asset Value (NAV) is $6.61. This is a discount of $1.38 which translates to a discount of 20.7%. This is extraordinary and unprecedented.

The fund is paying out $0.07 per month distribution which translates to a yield of 16.1%.

I think this fund should trade at a discount of 10% so I expect a 10% pop in the unit price unless the NAV collapses.

In interest of full disclosure I still own 15,000 units and I suggest you conduct your own due diligence. Click here to learn more.

SDT.UN and EIT.UN Trying to Support Unit Price With Buy Backs on the Open Market

The managers of SDT.UN and EIT.UN were actively in the market last week trying to support their unit prices.

Its hard to believe how far the unit prices have fallen and the discount to Net Asset Values are widening. Its no question that they are experiencing panic selling.

I have not sold the positions I still have at this point because sooner or later the unit prices will get closer to their net asset value. Furthermore, these stock buy backs will automatically increase the Net Asset Values of the remaining units.

Its like shooting fish in a barrell for the managers right now. They can raise their Net Asset values just by purchasing units. They will look like geniuses.

As the unit prices approach 95% of Net asset value I will begin to unload my remaining units.

I am Deeply Disappointed in the Managers of EIT.UN and SDT.UN

This year my largest holdings were in units of SDT.UN and EIT.UN. These two exchanged traded funds invest primarily in Canadian Income Trusts and provide excellent monthly distributions which is a core value of investing for income.

Both firms recently closed a share exchange where investors in Trusts and Canadian Banks could exchange their holdings into units of the funds. The problem is that they exchanged the holdings with Units that are trading well below Net Asset Value.

This is a bad deal for existing unit holders. EIT's Net Asset Value decrease at least $0.12 per unit. The only ones that win are the managers because their fund gets larger and they consequently get more fees. Its obvious to me that the fund mangers put their interest ahead of unit holders.

If the managers were acting in the interest of existing unit holders they could have undertaken the following;

1) a rights offering to existing unit holders at a discount to market value. Unit holders would then be able to excercise their rights (and suffer no dilution) or sold their rights in the open market.

or

2) they could have waited until the market price of the units was within 5% of the Net asset Value before undertaking a share exchange

or

3) They could have done nothing and waited for the market price to catch up to the Net Asset Value.

SDT.UN's new Net Asset Value after accounting for the share exchangehas not yet been published but I suspect that the Net asset Value decrease will be in the range of 2%-3%.
SDT.Un's sister ETF fund SEF.UN undertook a similar share exchange offering last spring and unit holders lost almost 10% of their Net asset Value.

What to do now?

I am slowly starting to unload my units in SDT.UN and EIT.UN. These funds are no longer a buy and hold investment. It is my opinion that whatever value the professional management brings to these funds its all eaten up in fees and dilutions.

I am developing my own diversified portfolio of income securities.

I have not Changed my Holdings

I have not published in awhile but rest assurred that I have not changed my holdings.

My largest positions are the same picks I have been advocating over the last 6 months.

EIT.UN-TSX and SDT.UN-TSX Clobbered

My two largest holdong Enervest and Sentry Select Diversified Exchange Traded income funds got clobbered today.

This is primarily due to the government announced they will tax Hotel and Retirement REITS operating income.

I am anxious to see the Net Asset Values of these two trust ETF's tomorrow morning.

I suspect the NAVs may be up.

EIT.UN-TSX

I bought another 1,000 units of EIT.UN today on the TSX.

This brings my total holdings to 33,000 units.

This exchange (TSX) traded fund yields 13.2%.

This fund holds a basket of 60 companies and is trading at a 13.6% discount to Net Asset Value.

So I get diversification and a 13.2% yield on my investment and the market value discount is like a free insurance policy.

These type of anomallies normally do not last long in the market place in my opinion.

Please perform your own due dilligence at http://www.enervest.com/main/page.php?page_id=2 .