Monday, July 31, 2006

non-retirement investments: Morgan Stanly Eastern European Fund

I have a small brokerage account that I've been using for somewhat experimental investing. Primarily investing in indexes via ETFs. This is a non-retirement account so I've been trying to avoid high turn over funds.

I've also made several investments in equites - not a large percentage of my portfolio, but enough to assuage my need for active investing - or at least enough to convince myself that indexes are a better way.

About a year ago I managed to demonstrate how foolish I could be. I bought two lots of Shanda Interactive SNDA while it was in it's 30s. Just before (I had been unaware of this interesting fact) a large number of insitututional and early investors flooded the market with their holdings. The flood, combined with an increasingly competitive online gaming market and pending regulatory action due to chinese citizens overplaying the game lead helped drive the price down from lofty 30s into the low 10s. Incidentally, Shanda managed to pen some worthwhile agreements with motorola and seems to be creeping north of $15. I'm skeptical that it will go much further, but I'm planning to hold the stock as an offset of future capital gains on other stock sales or sell it next year for the tax write off.

Recently I sold one of my lots and invested the balance in Morgan Stanley's Eastern European Fund (RNE). Although not an index (there's not enough substantial companies to build a reliable Eastern European index yet - at least enough to absorb American capital flows), it is a closed end fund (CEF) rather than a traditional mutual fund. I'm beginning to prefer CEFs to traditional open ended mutual funds.

I bought 69 shares at $31.20 on July 19th. At that time the fund had taken a beating, as did most of the emerging market funds - the timing seemed to synchronize with Fed statements about interest rate hikes. Oddly, when the overall market shot up a few days later when fears of interest rate increases abated, RNE shot up as well, as did many emerging markets. I am perplexed that emerging markets investments (which should not synchronize tightly with American markets - otherwise I'm not really diversifying) move so closely with American interest rate rumors and actions.

You'll notice from Yahoo finance that RNE is still low against it's 52 week cycle and I haven't read anything that tells me the Russian economy stopped growing, so perhaps its a more reasonable investment than it had been several weeks ago. It's 52 week high was $54.25 and it's low was $28.60.

Not only do I like it's growth potential, but I also like it's past dividend rate was about 10%, which is also exciting news.

I suppose I should limit Emerging market investments to about 5% of my portfolio, but my aggregate explicit emerging market holdings are just over 2% (with my pending purchase of IIF), so I think I have a way to go. To be technically correct, I should use morningstar's x-ray feature to learn how much emerging markets exposure I have with SWERX, Schwab's life cycle fund.

In two month's or so I will reformulate my trading accounts percentage mix and prepare to rebalance it. Eventually, I will start posting my trading account holdings, performance and percentages once I'm a bit better organized.

Next step in game plan:

buy about $2500 worth of IIF. I would really like to see the price drop below $40 before I push in, but I'm not certain it really will go much lower. I'll set a limit order a bit lower and see what happens.

Have a wondeful day,

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