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| SEPTEMBER 2006 NEWSLETTER On the Topic of Closed-End Funds This month we would like to continue the initiative of communicating, “How we do… what we do… for you.” In particular, how do we use closed-end funds with relatively high yields in your portfolio? A closed-end fund can be likened to a cross between a mutual fund and a stock. The fund purchases shares in companies and is comprised of many holdings, much like a mutual fund. However, there are a limited number of fund shares that trade between individual investors. These are bought and sold at the current market price, like a stock. The advantage of a closed-end fund is that you don’t have all your eggs in one basket, as you might with stock, yet you still have access to quarterly distributions. The closed-end funds that we use in your portfolio reflect specific sectors that we include in your benchmark. As a rule, if a fund is going to have a name relating to a specific sector, 80% or more of its holdings must be invested in that sector. As a specific example, we will discuss the fund managers Hambrecht & Quist, and two of their closed-end funds: H&Q Healthcare and H&Q Life Sciences. This is a fund we have had experience with over the last 15 years. The firm specializes in investing in early-stage biomedical companies. In addition, they have an operational rule of quarterly distributing stock dividends. Since we manage portfolios of sector specific funds, they fit well into how we build and rebalance your portfolio. If the sector falls out of favor, the fund will go down, which will drive us to buy more of it at a relative discount. The opposite holds true as well. If the fund is performing well, we look to sell it at a relative premium. This is how we make your diversified portfolio work for you. In addition, Hambrecht & Quist gives us the power of dividend yield to buffer your portfolio. Even when there is no market movement (like the sideways market of the past two years) or if there is downward momentum in the market, (like the period from May ’06 through August ’06) there is something happening for your benefit. We chose to discuss Hambrecht & Quist for the purpose of highlighting the fact that yield in a portfolio is another way to buffer and grow your money. You will notice on your quarterly reports that your shares owned will increase without having taken any specific action. This puts you in an even better position to take advantage of a potential run-up in the market. When these distributions are made in the form of cash dividends, we find that we have additional capital to invest or to cover your living expenses. Closed-end funds are just one piece of the comprehensive puzzle that we build for you. They are tools in our belt that we use to help you achieve your long term investing goals. It is important to us that you understand what we are doing in your interest, and that you are comfortable with the direction in which we are heading. To date, 2006 has been a very big year for Dominion Wealth Management, and we will continue to use these newsletters as a means of furthering your knowledge outside of our quarterly meetings. We hope you find them useful and informative and, as always, your feedback is greatly valued. Until next month: Take care.  | |
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Defensive Portfolio Measures
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The Lagging Healthcare Sector
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Investing in India
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Consistency
JUNE
The path Ahead
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Gradually Moving Back to Bonds
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Key Demographic Statistics
SEPTEMBER
Closed-End Funds
OCTOBER
Revising Dent's Expectations
NOVEMBER
Service Integrations
IRA ADVISOR NEWSLETTER 2006
Trow profiled in the April Newsletter
MATTHEWS ASIA NOW
NEWSLETTER 2006
The Demographics Issue
BNET BUSINESS NETWORK 2001
Ready to Retire