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From: ka@hropus.UUCP (Kenneth Almquist)
Newsgroups: net.invest
Subject: Mexico Fund (disadvantages of closed end funds)
Message-ID: <285@hropus.UUCP>
Date: Sun, 16-Feb-86 00:09:31 EST
Article-I.D.: hropus.285
Posted: Sun Feb 16 00:09:31 1986
Date-Received: Mon, 17-Feb-86 04:57:08 EST
Organization: Bell Labs, Holmdel, NJ
Lines: 29

In my article on the First Australia Fund, I stated that open ended
funds were generally preferable to closed end funds.  An example is
the Mexico Fund, which trades on the New York Stock Exchange at a bit
over $2 a share, or about half of the net asset value per share.

I can make a fairly confident guess at the history of this fund.  It
was probably launched when all the experts were predicting that oil
prices could go nowhere but up.  When oil prices went down instead,
Mexico, with its large foreign debt, was put in an economic bind, and
was forced to take drastic austerity measures which made investing in
Mexico unappealing.  Had the Mexico Fund been an open ended fund,
investors could have redeemed their shares at the net asset value,
possibly forcing the fund out of business.  But since the Mexico Fund
is a closed end fund, the only option open to investors was to sell
their shares to someone else.  Since nobody else wanted to invest in
Mexico either, investors who wanted to get out were forced to sell
their shares at far less than the net asset value.

While the fact that the Mexico Fund is closed ended has proved disas-
trous for the investors who bought it at near the net asset value,
it does provide an opportunity to anyone who is bullish on Mexico
now.  If the Mexican economy improves, not only will the value of the
holdings of the Mexico Fund increase, but the discount from net asset
value will probably decrease as well.  Thus you could do a lot better
investing in the Mexico Fund than investing in Mexico itself.  Does
anyone think that Mexico is headed for better times?
				Kenneth Almquist
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