With the start of earnings season for the quarter, we wanted to let investors know what we were expecting for BDCs in both NAV changes and discount levels in the near term and for the rest of 2015. Discounts are historically low and we think NAVs will hold up much better than investors feared with the past 3 months of significant sell-off for BDCs, across most of the 42 debt-based funds in the public market. (Recorded 2/4/15)
Watch the video here: https://vimeo.com/119085451
John Cole Scott, CEF Advisors:
The high yield category for closed-end funds is the opportunity to get a portfolio of bond investments that are below investment grade rated, which has a chance to give you the opportunity for higher returns and higher cash flow over time.
High yield closed-end bond funds in the last six months, on a net asset value basis, are down about 3 ½ percent on average. We think that the sector, having about 16 percent average energy exposure, has probably been overdone by investors.
Click Here to watch video: http://investius.com/2015/01/26/high-yield-bond-cefs/
We discussed the firm’s investment approach, sectors and funds we currently see as attractive (Sr. Loan, MLP, Municipal Bond and Debt focused BDCs), as well as, commentary on some of Chuck’s listeners CEFs of interest for his well-known “Hold It or Fold It” segment.
You can listen to the show by clicking this link: [Click Here]
Or, copy and past the following link: http://www.cefadvisors.com/Download/2015-0112-MarketCallwithJohnColeScott.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/
CEFs / BDCs Discussed:
JQC, JMLP, LEO, ARCC; during “Hold It or Fold It:” ETY, PEO, PGP, BME, TEI
For those that were not able to attend our Quarterly Research Call on January 8, 2015, we have the replay link and slides in PDF format below. This quarter we covered The Closed-End Fund Universe, both traditional CEFs and BDCs.
We are excited to offer coverage of Business Development Company (BDC) CEFs alongside our coverage of Traditional CEFs. We produce 165 data points on traditional CEFs and 100 on BDCs in our weekly CEF Universe data.
GotoWebinar has a new feature that allows us to load the replay to their website, it can be accessed though the following link: https://attendee.gotowebinar.com/recording/8672554458466650370
Slides from the presentation can be downloaded in PDF format using the following link: http://www.cefadvisors.com/Download/2015-0108-CEFUpdate-Outlook.pdf
If you have any questions about the session or replay links please email Katerina@cefadvisors.com or call us (800) 356-3508.
Overview Traditional CEFs: According to our CEF Universe Service dated December 31, 2014, during the fourth quarter of 2014 the traditional closed-end fund universe ended with 571 funds totaling $262B in Total Net Assets, which reflects a net asset growth of about 4.2% during 2014. There were 225 total Equity funds and 346 total Bond funds. The average Discount to NAV is -7.5%, the average Market Price Yield is 7.3%; 8.2% for Equity funds, 7.9% for Taxable Bond funds, and 5.7% for Municipal Bond funds. In general, discounts have narrowed about -4.3% during this quarter and a 0.8% below the quarter’s average Discount per fund. US and Non-US Equity funds had generally widened, the narrowing was more prevalent in Municipal funds. This makes many CEF groupings (most Taxable Bond sectors, BDCs, MLP and global equity funds attractive for investors willing to take a slightly contrarian view of the current market environment.
Participants: John Cole Scott, Portfolio Manager and EVP of Closed-End Fund Advisors
Kevin Mahn, President and Chief Investment Officer (CIO), Hennion & Walsh Asset Management / SmartTrust® UITs
Herb Blank, Head of Business Development, Managing Dir. of ESG Solutions at S-Network Global Indexes and Steering Committee Chairperson of QWAFAFEW
During the Session, We Covered:
- The value of buying exposure to permanent capital with daily liquidity
- Benefits of low cost leverage to potentially enhance portfolio yield
- Gaining access to inefficient markets through the generally repeatable alpha of a CEFs discount pattern
- Balancing fundamental and CEF data in portfolio construction.
- Portfolio Selection Criteria for ETFs Accessing Closed-End Funds
- Strategic and Tactical uses for Closed-End Fund ETFs
- Screening for Income Producing CEFs within a UIT
- Pre-submitted and Live Q&A
John Cole Scott, CEF Advisors:
They’re another group that had a very exciting 2013. They’ve had a rather unloved 2014.
There’s not as many senior loan funds as municipal bond, but there’s almost 30 available to investors. A new one just came out this quarter.
But when you look at them, they’re right now trading at about 9 discounts on average to net asset value, which is considerably wide. They’re yielding about 7.4%, which for loans that will generally rise with rising interest rates – which a lot of people think rates will rise at some point in the future – is a very favorable position to be in.
And you look at the guts. The guts have been doing real well. The guts are up about 6.5% on a one-year basis, but market price is up only one and change. So definitely you can tell that discounts widened.
Again, the closed-end fund story… when things are disliked and they’re well-managed and they have a reason to be in long-term, it’s when you go in and you invest.
Watch Video: http://investius.com/2014/12/15/senior-loan-cefs/
The following article is an edited transcript from the in New York City earlier this fall. To view slides or listen to the entire presentation please visit www.CEFnetwork.com and look under the “Events Tab” or use the following link:
John Cole Scott, EVP Portfolio Manager at Closed-End Fund Advisors
Thomas Byron, Senior Portfolio Manager, Invesco
Robert Amodeo, Head of Municipals, Western Asset Management (part of Legg Mason)
Michael Taggart, VP, Director of Closed-End Fund Research, Nuveen Investments
Note: Some minor edits were made to this article since it was first published, as well as some of the comments attributed to Tom, Rob and Mike we incorrectly noted. They have now been fixed as of 12/19/14.
JCS: We’re going to get started here with the next panel talking about the advantages of tax-free investing in the closed-end fund structure. My name is John Cole Scott with Closed-End Fund Advisers. I’ve got some excellent panelists for you, some top minds in this sector. We’ve got Mike Taggart with Nuveen Investments. He’s also spent some time with Morningstar. Then we’ve got Robert from Western and Tom from Invesco.
This is going to be less of a presentation panel and more of a conversation panel. We’ve added a lot of time at the end for questions.
When people ask why closed-end funds, there are three main answers that we give at our firm. One is that it’s fixed capital, there’s no redemption pressures for those that trade muni bond funds. They typically don’t trade, some of them very actively. Then managers in the firms up here, they’re able to pick great bonds at great prices and not worry as investor sentiment shifts.
We also have leverage. Leverage is sometimes a dirty word but, in my opinion, with fixed capitalization, you add leverage, it’s a great combination for income investing.
Then we look at active management. With many closed-end funds, including muni funds, trading at 7-11% discounts, you’re effectively getting the active management for free. It’s a huge benefit.
With that, we’re going to go ahead and get into the panel. That’s the backdrop of the conversation. Michael, if you would start. Could you just give me the sense of your firm, how you approach muni bond investing with closed-end funds, and how you build the process and do the work for shareholders?
Mike: I just want to be absolutely clear with everybody. I’m the director of closed-end fund research and Nuveen Investments. Tom and Rob are the portfolio managers on the panel. Nuveen’s roots are in municipal bond investing. Today we offer a whole range of investment strategies; we analyze more than just municipal bond funds, but they are our home base. The way we approach it is we have a team of municipal credit analysts, 23 people strong. So because of that, they’re able to dig under the hood more than say if we didn’t have that large of a team.
We have over a hundred billion dollars in assets. We’re also the largest provider of national municipal closed-end funds both in terms of the assets and in terms of the number of funds. Somebody asked earlier, why don’t Nuveen and a couple of other sponsors trim down their line-ups? We have actually trimmed down our line-ups and we haven’t said that we’re going to stop. Just in a couple of weeks we’re taking four New Jersey municipal funds and turning them into one. Over the past two years we’ve removed, through consolidation, about 40 funds, primarily municipal bond funds, from our line-up.
JCS: Robert, can you discuss some of the work you do at Western, your team’s approach to buying munis, and your background. Read more…