Today I want to write about a new phenomenon among US money managers, the creation of funds of funds, which has been the tactic used by City of London asset managers for decades. Now thanks to the re-arrival of Lazard Asset Management in the US, the managers of other US funds are following CofL's strategy, buying closed-end funds at a discount from their net asset value. This is cheap investing and gives the fund manager a natural gain from the discounts.

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I call Lazard's coming here as a re-arrival because the French asset management company was actually founded in New Orleans when it was still French, before the Louisiana purchase. Moreover, during World War II Lazard's André Mayer invested on behalf of the company's Jewish clan and others fleeing the Occupation from New York City.

As my readers know, closed-end funds typically trade at a discount once they have begun to function, even if they traded at par or above it at the initial public offering. You can see the bargains with weekly data published by Barron's based on data from LipperAnalytical or Florida fund manager Tom Herzfeld. (He seems to have gained an edge again after Lipper data gaps kept the Dow-Jones weekly from publishing fund net asset values earlier this month.)

The US requires that funds investing in other funds inform the market of what they are up to. That is why we can see exactly where Lazard is placing its bets, in US country funds. The sums are huge. Here is a summary:

Central European & Russia Fund, CEE, 18.45% of the shares outstanding;

New Germany Fund, GF, 14.57% of the shares outstanding;

Morgan Stanley China A-shares, CAF,19.23% of the shares outstanding;

Templeton Dragon Fund, TDF, 12.56% of the shares outstanding;

Korea Fund, KF, 16.5% of the shares outstanding;

Japan Small Cap Fund, JOF, 12.84%.

The latter move has led to a US copycat. Wells Fargo owns 20.77% of JOF. The other thing is that Barron's over the weekend did not show the net asset value and discounts of some income funds, notably those from Pimco Dynamic Income and Advent Claymore Income Fund which invests in convertible securities, AVK. We don't cover AVK because of conflicts of interest with one of our writers.

Mr. Herzfeld does include his managed fund, Herzfeld Caribbean Fund, CUBA, in his tallies. It lost 7.3% in the last 52 weeks because of being heavily into tourism (hotels and cruise companies) during the COVID-19 lockdown. He had to name it after himself because the CUBA fund name was barred by regulators.

Lazard meanwhile has launched a closed-end fund of its own, Lazard Global Total Return Fund, LGI, which we own because I know these guys from when I worked in Paris and learned all that history. It returned 21.3% in the last year, and trades at a modest 8.2% discount from NAV. The really big discounts on closed-end funds is not in the USA but in Canada where Canada General Investments CGRIF, is at a 31% discount, Highland Global Allocation Fund at 34%, and Economic Income Fund at one of 29.5%. We own CGRIF, also traded as CGI in Toronto.