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Closed-End Fund Advisors: Second Quarter 2014 CEF Review and Outlook Summary and WEBINAR REPLAY Links

webinar-newFor those that were not able to attend our Quarterly Research Call this quarter in which we covered The Closed-End Fund Universe, we have included the slides and replay file.

We are excited to know offer coverage in this call on Business Development Company (BDC) CEFs alongside our coverage of Traditional CEFs. We will post the replay summary article on this blog post over the weekend. The article will roughly follow the slide order in the slide deck.

Link to Webinar replay slides:

Webinar Replay;

Overview Traditional CEFs: According to our CEF Universe Service dated June 30, 2014, during the second quarter of 2014 the traditional closed-end fund universe ended with 585 funds totaling $270B in Total Net Assets, which reflects an asset growth of about +7.4% year-to-date. There were 226 total Equity funds and 359 total Bond funds.  The average Discount to NAV is -6.1% and the average Market Price Yield is 6.8%; 7.3% for Taxable Bond funds and about 6% for Municipal Bond funds.  In general, discounts have been fairly stable during this quarter with about a +0.6% narrowing since last quarter-end and a +0.2% above the quarter’s average Discount per fund. We have not seen as tepid of discount movements in recent history since the 3rd quarter of 2012.

Overview Business Development Company (BDC) CEFs: According to our CEF Universe Service dated June 30, 2014, during the second quarter of 2014 the BDC closed-end fund universe ended with 50 funds totaling $32B in total net assets. The average Discount to NAV is -0.17% and the average Market Price Yield is 9.4%. There were 9 Equity Focused BDC CEF funds with an average Discount of -23.71% and a Yield of 4.6% and 41 Debt Focused BDC CEF funds with an average Premium of +5.13% and an average Yield of 9.9%. We want to note that as BDC CEFs are new to many investors, they only produce a NAV or “Book Value” quarterly as they typically own non-traded securities. Read more…

“Discount View” Investius Interview from Morningstar’s 26th Investment Conference

JCS-Investius-Disc-2014-06Discounts persist in several sectors that may be attractive to CEF investors, says John Cole Scott of CEF Advisors.

Investius: Everyone likes a bargain… including closed-end fund investors. Amid the action and excitement of the perennial Morningstar investment conference in Chicago, John Cole Scott of CEF Advisors shares his view on discount trends in the closed-end fund market.

John Cole Scott, CEF Advisors:

According to our universe data as of mid June, muni bond funds are just under 5% in average discount.  Taxable bond funds are just over 5%, sector equity are around 6%, and both non-US and US equity funds are around 8% discounts.  What’s interesting is if you look at current discounts versus the lows the past few months versus the peak from about a year or so ago, we’re about a third up from the bottom, which tells us that, while it’s not as cheap as it was recently, it’s still not over-expensive in our opinion.

Watch two minute video:

BDC CEFs Poised to Perform well in a Rising Rate Environment: Potential for Growing Income & Positive Total Return

rising-interest-ratesWe constantly hear from investors seeking ways to maintain yield or add to their portfolio’s income potential as well as develop an investment strategy for a future rising interest rate environment. We think Business Development Company Closed-Ended Management Companies (BDC CEFs) can be a key part of this strategy and CEF Advisors already employs 4% to 12% exposure in these funds for most client accounts. In the past few years many BDC CEFs have increased their portfolio exposure to floating rate investments and have generally used Fixed Leverage Cost to finance the investments. We see this as a very positive trend for retired investors looking to build and manage an income oriented portfolio that they should have trouble out-living. However, we find that BDC CEFs require more research to understand than their traditional CEF cousins and are not as homogeneous as traditional CEFs.

BDC CEFs are not new investment structures. They are regulated investment companies, created by Congress in 1980 to help spur investment in smaller companies and give investors access to strategies previously only available to accredited or high net worth investors. BDC CEFs generally make loans and or invest in smaller US companies and pass on the interest to shareholders as income in a similar fashion to REITs and MLPs. BDC CEFs are “flow through” vehicles for tax purposes and pay no corporate taxes as long as they distribute 90% of their annual income to shareholders. We follow them alongside our work in traditional CEFs as they meet our firm’s CEF definition: active portfolio management, fixed capital structure and investor liquidity through listing on exchanges. As the lending market from traditional banks has waned, BDC CEFs have increased lending to both growing and distressed companies. This can be a very profitable business when done well on a consistent basis. We started actively tracking BDC CEFs in our weekly CEF Universe data in March of 2014 and currently record 45 data points per fund. Read more…

How to Manage a Closed-End Fund Portfolio Like An Expert, Beyond The “CEF Trifecta”

PM Stock PhotoWhat is the next level of closed-end fund analysis? This article expands on some of our previous work, including, “The Closed-End Fund Trifecta” and “CEF Discounts: A Master Class in Nuance”. Followers of our firm will know we advocate answering three questions in selecting a closed-end fund, calling this our CEF Trifecta: 1. Is a CEF priced at a relative value to itself and peers? 2. Is the dividend level sustainable? and 3. Is the manager or sector performing well on a net asset value (NAV) basis? What is missing from this perspective? We find that some investors seem to lack a plan in designing and maintaining their portfolio and we believe adding the following concepts to our Trifecta analysis will improve your long-term investment performance.

Step 1: Portfolio Construction and Management: First, we always recommend investors decide on an asset allocation that meets their unique goals and risk tolerance, and to document what they expect to achieve from an investments before starting the strategy. This might sound basic, but we find it is often overlooked. We find a lot of comfort in cutting a loss early or taking a gain when there are more attractive or better performing funds available to swap into while maintaining a similar investment strategy.

A prime example of this is when building a municipal bond CEF portfolio; we generally see two typical investor psyches. One group of investors are driven by tax-equivalent-yields (TEY); they are tax-sensitive and primarily looking for investment grade Bond exposure of 10% or more TEY, depending on their marginal tax bracket. They want to maintain a stable or growing amount of tax-free income and expect the “principal” of the account to be secure over time. However, they understand there will likely be positive and negative years for the account’s principal value and that in general the discounts of Municipal Bonds, and other CEFs, move in cyclical trends. Read more…

Scott Letter: Closed-End Fund Report Interview with Cohen and Steers, Quality Income Reality Fund (RQI)

RQI-SL-Combo-2014-06June, 5, 2014, Richmond, VA. —  Closed-End Fund Advisors is pleased to announce an in-depth interview in The Scott Letter: Closed-End Fund Report with Jason Yablon, portfolio manager at Cohen & Steers on  their Quality Income Reality Fund (RQI). We found the interview to be a timely update on the Real Estate / REIT sector as well as how the fund is being managed and 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, webinars and live CEF conferences or meetings we host or are otherwise involved with in some way.  Free Scott Letter Registration:



Closed-End Fund Discounts: A Master-Class in Nuance

ImageWe are often asked, “So, your firm buys closed-end funds, do you just buy at a discount and sell at a premium?” After thirteen years in the industry the answer is, “Yes, but all discounts are not created equal”.  In this article we hope to address three areas that we believe investors should better understand before venturing into the closed-end fund (CEF) structure. First let’s look at Absolute Discounts vs. Relative Discounts charted over the past two years.  An Absolute Discount is the fund’s current Market Price vs. Current Net Asset Value (NAV).  CEFA defines a Relative Discount as a fund’s Current Discount/Premium vs. its 90-day Average Discount/Premium. We see Relative Discounts as a way to monitor the momentum and recent relative value of a fund’s Current Discount. For some CEFs trading near their Historical Average Discount level is normal while other CEFs routinely trade with a high level of Discount Volatility. We think that this information is important to comprehend. The graphs below track the Average Read more…

REPLAY – Updated Municipal Bond Webinar: Can CEFs Help Build a 6.25%+ Tax-Free Yielding Portfolio?*


Today’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]

To download and view the webinar replay click [Here]

CEFA launched a Municipal Bond Portfolio Model this quarter 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. 


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