If you dabble in the closed-end fund market long enough, you are probably going to own a fund that sees its dividend cut. This seemingly innocuous event can have numerous ripple effects for shareholders that should be carefully evaluated before you respond with any knee-jerk reactions. Read more
This month’s video takes an in-depth look at the closed-end fund marketplace. Charts include both diversified CEF indexes and single fund names. Overall the trend remains solid, however we are starting to see stretched premiums and tight discounts across the entire spectrum. Risk is high and caution should be warranted at this stage of the cycle. Video recorded after the market close on February 8, 2017.
Investors in closed-end funds have to contend with different risks and analysis criteria than ETF or open-ended mutual funds. Those that have spent any length of time in this space have more than likely learned how important it is to look beyond distribution yield, recent price trend, or the touch of a star fund manager. While these characteristics are important, they can easily be overridden by an exorbitant premium or fundamental catalyst that turns the corner. Read more
While most investors would likely believe that it’s tougher to uncover relative value in deeply discounted closed-end funds, in my opinion the hardest part of managing a CEF portfolio is knowing when to cut bait and move on. The truth is that there is no clear formula for measuring valuation, meaning that although a fund may be trading marginally above its historical spread to NAV, that doesn’t necessarily mean it’s richly valued. Read more
Closed-end funds (CEFs) always have a way of being late to the party, both on the upside and downside. During the most recent correction, many popular CEFs barely flinched until volatility picked up heavily on the downside and we were already 5-7% off the highs in the major averages. Conversely, with the market having rallied substantially during the last six weeks, many CEFs have lost their relative attractiveness as new money pours into aggressive high income strategies. Read more