It has often been said that you should never buy a closed-end fund upon its initial public offering. Gregg Greenberg at illustrates that aphorism well today. 2005 has been a bad year for buyers of these, too often, me-too funds:

Of the 45 IPOs released since January, only four as of the beginning of this month are trading above their offering price, and 24 are down 10% or more.

Some of this underperformance may be due to the large number of funds that are dependent on option writing for their performance. Kopin Tan in Barron’s wrote on the rise of this class of option writers putting downward pressure on implied volatilities.

Once upon a time, option volume was more directly hitched to stock-market volatility, with investors rushing to trade puts and calls when underlying shares gyrate. But for the third straight year, option volume has soared in 2005 even as volatility declined or stayed low — an indication, at the very least, that trading is driven not just by expectation of stock movement, but by hedging and the selling of options to drum up income. That impression is corroborated by closed-end funds using call-selling strategies that have raised more than $18 billion in the past 16 months — a trend that shows no signs of abating in 2006.

The ETFs just keep on coming. Rydex Investments has launched the Euro Currency Trust (FXE) exchange traded fund. It will track the price of 100 Euros (plus accrued interest). The above mentioned Gregg Greenberg has more.

Ker Than at LiveScience reports on a study that shows how the brain responds differently to ambiguous decisions and risky decisions. In the case of ambiguous situations, where a person is ignorant of both the outcome and the probability of the outcome, centers in the brain linked to emotion and fear light up. (Link via Kevin Depew at

Morningstar equity analysts analyze and price individual equities on a consistent basis. Some may argue with their methodology, but it does allow them to do some interesting things on the index level. Dan Culloton compares the relative valuation of various ETFs. While the overall market looks fairly valued, certain sectors like energy and materials seem overvalued, while consumer staples seem undervalued.

Pratima Desai at Reuters notices that hedge fund lock-ups seem to be getting longer. This is due in part to the attempt to avoid SEC registration, but also to match the duration of private equity investments.

Chet Currier at Bloomberg finds it interesting that mutual fund assets grew (in absolute terms) more than hedge fund assets.