In recent months you may have seen a dip in your taxable bond fund’s distributions. While equity and muni fund payouts appear relatively stable, John Cole Scott of CEF Advisors says taxable bond funds may continue to suffer a distribution downturn.
Watch Video Interview: http://investius.com/2014/05/05/distribution-downturn/
Closed-end fund investors should consider buying the Blackrock MuniHoldings Quality Fund (MUE) because of its 6.6% dividend yield and double digit discount, says John Cole Scott, portfolio manager for Closed-End Fund Advisors. Scott is also bullish on the Cohen & Steers MLP Income and Energy Opportunity Fund (MIE) because of its high yield and overly wide discount, despite the fact that its only a year old. Finally, Scott is a fan of the highly diversified Nuveen Diversified Dividend & Income Fund (JDD) which yields about 8.5% with significant exposure to equity and bond investments. Data from CEFA’s Closed-End Fund Universe dated 4/17/14.
We discussed the firm’s investment approach, sector and funds we currently see as attractive, as well as, commentary on some of Chuck’s listeners CEFs of interest for his well-known “Hold It or Fold It” segment.
NOTE: We referenced Eaton Vance Tax Advantaged Dividend fund (EVT) as a fund we saw as attractive, but spoke “ETV”, Eaton Vance Tax Managed Buy-Write Fund which is more of a option premium / covered call fund. We apologize for any confusion.
You can listen to the show by clicking this link: [Click Here]
Or, copy and past the following link: https://www.cefadvisors.com/Download/140416-MarketCall-with-JohnColeScott.mp3
MoneyLife host Chuck Jaffe is senior columnist for MarketWatch. His three weekly columns are syndicated nationally, and his “Your Funds” column is the most widely read feature on mutual fund investing in America. In 2009, Chuck was named to MutualFundWire’s list of the 40 Most Influential People in Fund Distribution, the only journalist ever to make the list. Learn more on their website: http://www.moneylifeshow.com/
For those that were not able to attend our Quarterly Research Call on Wednesday April 9th at 4:30pm EST, in which we covered The Closed-End Fund Universe, we have included the slides and replay file with the following summary article, which roughly follows the slide order in the slide deck.
According to our CEF Universe Service dated March 31, 2014, during the first quarter of 2014 the closed-end fund universe ended with 595 funds totaling $259B in total net assets, which reflects an asset growth of about 3% year-to-date. There were 227 total Equity funds and 368 total Bond funds. The average discount to NAV is -6.7% and the average market price yield is7.1%. In general, discounts have been fairly stable during this quarter vs. their previous 9 months of general discount widening.
CEF Yield, Volume and Liquidity: At current market prices and distribution policies, 89% of all CEFs yield over 5% and 53.1% of all CEFs yield between 6.5% and 10%, which we feel is the core income universe for CEFs. Yields for CEFs peaked last summer and while they are still at very attractive, they are off the year-end tax-loss selling highs. The one major sector with an increase to the income-only portion of the yield is US Equity funds which have shown nice increases in March 2014. Trade volumes are down in March vs. the first quarter by about -4%; this trend is most pronounced in National Muni CEFs, which are trading down -8% and Non US CEFs, which are trading down -10% on average. Liquidity for CEFs is trending down from the abnormally high levels during the tax-loss selling season of the fourth quarter of 2013. Currently about 63.7% of closed-end funds trade over $500K a day in average liquidity, with less than 3% of CEFs trading over $5M a day in liquidity . Read more…
John Cole Scott, Portfolio Manager and EVP at Closed-End Fund Advisors gave a guest lecture to the Capital Market Class at Virginia Commonwealth University on April 3, 2014. It covered an introduction to closed-end funds and how the firm has learned to understand and evaluate these funds over the years. We have provided both a link to the slides in PDF format and the audio file as a WMV file for your reference and convenience. We expect to post the transcription of the presentation early next week on this blog entry.
Virginia Commonwealth University’s
Capital Markets Class:
“Crash Course in Closed-End Fund’s: Inefficient Securities with Above Normal Yield”
In our experience, leverage for closed-end funds is often touted as either their salvation or an Achilles Heel. We believe the ability for funds to borrow at long-term rates and invest in the shorter-term is still a powerful benefit to closed-end fund investors. CEFA has been working hard this year to collect and organize data on the various types of CEF leverage as well as the average “cost” per fund for their use of leverage. In a few months we plan to include a CEF’s leverage cost trend in order to identify funds with rising costs for borrowing money vs. those funds whose costs have either stayed stable or lowered over time. In this article, we wanted to shed some light on the current cost of leverage for the main four groups of CEFs and have compiled the following data to help us do that.
CEFA tracks 594 current closed-end funds, as of our March 7, 2014 CEF Universe Report; 112 (19%) of these funds have no leverage employed while 49 (8.3%) have between 1% and 10% leverage employed. The remaining 434 funds have an average of 32% leverage. This is where we focused our review.
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