4 Closed-End Funds Trading at a Discount (Street.com’s Gregg Greenberg interviews John Cole Scott, CIO at CEF Advisors)
Alpine Total Dynamic Dividend (AOD) trades at a 16.4% discount to its net asset value, or NAV, below its three-year average discount of 14.7%. John Cole Scott, chief investment officer at Closed-End Fund Advisors, does not expect that exaggerated discount to last.
“AOD’s management aggravated investors a few years ago due to its dividend policy, which it has since changed,” said Scott. “Management has improved, but investors are still punishing it unfairly.”
Tortoise Energy Independence (NDP) trades at a 12.6% discount to its NAV. The three-year average discount for the global equity fund is 10.1%. The pipeline MLP closed-end fund fell 35% in 2015 due to the drop in energy prices, but it is up 5% in 2016. Scott expects more gains ahead.
“Tortoise is a great manager, and even though NDP had a rough year in 2015, the fund was still better than its peers,” said Scott. “And it will do much better this year with oil stabilizing.”
Monroe Capital (MRCC ) is a business development company, or BDC, yielding 10%. Scott said it is a “shareholder-friendly” BDC with above-average first lien and variable loans. MRCC’s market cap is $175 million.
A BDC is a form of U.S. unregistered closed-end investment company that invests in small and mid-sized businesses, almost like a venture capital company.
“Monroe is a smaller market cap fund, yet it is part of a much bigger shop with great managers,” said Scott.
Finally, Scott is a fan of NexPoint Credit Strategies Fund (NHF) , which trades at a 14.1% discount to its NAV. The three-year average discount for the global equity fund is 13%.
“NHF is a balanced fund which gives investors a hedge fund experience without the hedge fund fees,” said Scott. “It has high insider ownership, and that aligns management with investors. That’s something we like in a fund.”