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Balancing CEF Data vs. Portfolio Data when Selecting a Closed-End Fund

balancing-stonesWe are often asked how we decide to purchase shares in a CEF and at what price point we are comfortable buying into a fund or where we would exit a portfolio position. This reminds us that we find many CEF investors only focus their effort on either the CEF-based data or the fund’s fundamental data when deciding to buy a CEF. A closed-end fund is at its basic sense equity exposure to an active manager’s results. We think you should like the pricing and the investment to own the shares no matter who is the portfolio manager.

We would suggest investors first decide that they want to be in the sector that the fund is in and become comfortable that the manager has the experience to do the job well for investors. We find that the most successful CEF investors balance these two areas well over time and through various market cycles. As they are a large part of the CEF universe, we will use Municipal Bond CEFs as the example when helping to explain these concepts in this article.  The process can be applied to equity, taxable bond or BDCs funds in a similar fashion.

Fundamental Fund Data:

This is the data that is part of the fund’s disclosures on a typically quarterly basis. It includes allocations for sectors and countries as well as the type of securities; for example, a fund could own both bonds and common stocks in varying percentages. We would also include the fund’s net asset value (NAV) performance on a total return basis.  It is important to be able to judge a manager vs. his/her peers and an index over time, as well as how volatile the returns have been historically.  Read more…

Webinar Replay & Slides: Can CEFs Help Build a 6%+ Tax-Free Yielding Portfolio?*

TaxesToday’s live webinar on how a portfolio using closed-end funds to gain municipal bond exposure has been archived with the slides and replay below: 
Please click here for the Presentation Slides in PDF format: [Here]

Full Link:

To download and view the webinar replay click [Here]
Full Link:

Article Referenced during session on CEFs in a rising rates environemnt:

CEFA’s Universe Data Definitions:

CEFA launched a Municipal Bond Portfolio Model earlier this year and offers three options for tax-free investors looking for professional management:. 1. National Muni Focus 2. New York Muni Focus and 3. California Muni Focus. This session focused on the National model. If you live in California or New York please call or email us to learn more. or toll-free (800) 356-3508 / (804) 288-2482.

CEFA also offers a Monthly CEF “Best Ideas List”, Weekly “CEF Universe” data service and a “Daily CEF News Alert” service for investors or investment professionals that want to access the firm’s resources without hiring us as an investment manager. We have free trials for the news and data services and offer prorated refunds on any services offered by the firm. 

Scott Letter: Closed-End Fund Report Interview with Eaton Vance’s Walter Row, Portfolio Manager of Their Tax Managed Dividend Equity Income Fund (ETY) – [Free Sign-Up Required]


ETY-SL Blog Photo

September 8, 2014, Richmond, VA.—  Closed-End Fund Advisors is pleased to announce an in-depth interview in The Scott Letter: Closed-End Fund Report with Walter Row, portfolio manager at Eaton Vance on their Tax Managed Dividend Equity Income Fund (ETY). We found the interview to be a timely update on how investors could gain US Equity / S&P 500 exposure at a discount to NAV with tax sensitive dividends and portfolio management with strategies like dividend rolling and tax-loss harvesting to increase the after tax return of the fund for many shareholders who may use in a taxable account. CEFA cannot give tax advice. We also discuss how the fund is being positioned in the current economic and interest rate environment. If you are not already a subscriber to The Scott Letter, a subscription is free on our website

Once you sign-up, you will receive the interview as well as gain access to our firm’s periodic email updates on our services, CEF markets and various articles, videos, webinars and live CEF conferences or meetings we host or are otherwise involved with in some way.  

Free Scott Letter Registration:


Closed-End Fund Sponsors’ Investor Relations Practices and their Role in Secondary Market Support: (Article and Video)

This article is based-on the video we recorded last week and which can be found on our firm’s Vimeo channel. [Here] Full link:

The Article:

JCS IR Video-2014-08

How well we are able to analyze a fund depends a lot on what information the fund managers provide us with.  It is important for a fund to have a good reputation amongst retail and institutional investors and often how they handle investor relations determines that reputation.  There is a wide range of different types of investors.  Managers need to be able to understand how to communicate with all of them in order to compete with other structures, ETFs in particular.

Investor relations is the part of the fund sponsor’s work that shapes our ability, as advisors, to access the mangers outlook and positioning strategy in addition to in-depth details about a portfolio’s contents. As a firm, when we build and adjust clients’ accounts over time, this data helps us make our portfolio decisions. Without it, we would be flying blind, not knowing what to expect from a manager over various market cycles. Read more…

BDCs Attract Yield Seekers: “Who ‘Cousin’ BDC Is”

BDC-Video-CapLink-2014-04August 18th, 2014

Business Development Companies, a CEF “cousin,” are gaining attention from yield-seeking investors, says John Cole Scott of CEF Advisors.

More people are covering them and I think you’ll see a lot more from the Closed-End Fund Association, which now allows them as a member organization.  So I think investors and advisors will be hearing much more about BDCs going forward.

Business Development Companies are closed-ended management companies… Our firm was interested in them because of their fixed capital, active management and investment liquidity.  And they’re growing tremendously. We expect maybe 10 IPOs this year.  We’ve already had, I think, four or five. …

Watch the 2:37 minute Video:

Closed-End Funds: Rising Rates and the Impact on Performance and Yield

interest rate - bondsClosed-end fund (CEF) investors have been asking our firm over the past year how we expect the various groups of funds to handle the eventual rise of interest rates. We generally hear the same two questions.

1. How likely are we to lose money on a total return basis?
2. How will my cash flow change during a rise in interest rates?

To help prepare for this environment, we have spent time researching the cost and terms of leverage for closed-end funds as we believe these data points will be an important part of fund selection during a rising rate environment. We recently wrote an article on how Business Development Company’s (BDCs), a sub-set of the closed-end fund universe, did from the period March 1, 2004 to September 28, 2007 vs. High Yield and Senior Loan Taxable Bond CEFs as 30 day Libor rose from 1.0973% to 5.4927% (a 4.40% increase) over a period of 43 months. You can read the full article on our blog ( This is the most pronounced rise in rates in recent history, and one period of time that is potentially similar in nature to the increase in rates currently forecasted for 2015 or 2016.

This article is designed to give investors perspective on what they could expect to experience in terms of a total return perspective or for potential changes in their fund’s distribution yields. Of the 636 current closed-end funds (traditional and BDC), 381, or about 60% of the universe, existed on March 1, 2004 when Libor rates were at 1.0973%. Below is a summary on how the average fund performed both on a market price total return basis, as well as in terms of the average change to yield over the 43 month period.  Libor rates peaked at 5.4927% on September 28, 2007.

We also want to show which groups had the highest number of significant dividend changes and where investors could have experienced negative market price total returns over the period.  We show the total returns for the S&P 500 as well as a Barclays Taxable and Municipal Bond index for comparison. Read more…

“Why You Buy (or Sell): CEF Investing Tips” Investius Interview From 2014 Morningstar Investment Conference in Chicago

Investius-2014-07-2Closed-end funds are over 100 years old.  There are about $300 billion in assets.  There’s enough of them to make decisions, but there’s a few enough number to follow them actively.

Well, traditionally we talk to people, the first level of knowledge we hope they can learn is how to buy funds at a relative value at reasonable yields with good manager performance.

Once they’ve mastered that, the next level we feel is more on the portfolio management side, for step one… making sure they’ve got the right size allocation, not over-weighting or under-weighting what they’re doing.

Step two might be looking at why you would sell a fund and why you would buy a fund.  And if you look at a winner or a loser, we find some people … 

Watch two minute video:


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