I wrote about RiverNorth Opportunities Fund (NYSE:RIV) a few days ago (RiverNorth's New Fund Takes An Opportunistic Approach To Closed-End Fund Investing). The article generated some valuable commentary. Readers brought several points to my attention (thanks especially to reader mdshaffer) that I had missed or simply neglected.
The fund takes an aggressively opportunistic strategy to exploit market inefficiencies in the closed-end fund marketplace. More details are available in the previous article, so I refer the interested reader there and to RiverNorth's website. Several interesting aspects of the fund deserve follow up mention, so I want to take this opportunity to add some points to that article.
First: There is a video that is required viewing for any interested investor (although after I finished watching it I had a sore neck in sympathy with those poor talking heads who had to look over their shoulders the whole time).
Second: In the previous article, I noted the fund has paid out special distributions in each of its first two quarters $0.035 in April and $0.54 in July. I wondered what the source of those distributions was. After watching the video I have an explanation for them (although the actual source of the cash is still unclear to me). The fund's policy, for the first year, is that each quarter unrealized gains in NAV will be paid out to shareholders at the rate of $0.50 on the dollar. Think about that. As long as NAV is increasing, half of the increase will be paid out quarterly for two more quarters. Now think about that in this context: You can buy NAV today at a -5.3% discount.
Third: After five years of the fund's existence, December 2020, shareholders will vote on the question of converting the fund from a closed-end fund to an open-end fund. The conversion will take place at NAV. This provision more or less guarantees that shareholders who stick around will not lose any value to a widening discount. Indeed, this provision along with the policy of returning unrealized NAV gains would seem to protect against any real deepening of the discount. It is one of the most shareholder friendly approaches to a CEF that I can imagine. It also makes me think that today's discount is doubly attractive because the CEF has pretty much stacked the deck against any blow-out losses to discount.
Finally, some questions came up in the discussion of the fund. One had to do with the portfolio. The fund's objectives state that it will invest in CEFs and ETFs, but as a commenter noted, it appears to be entirely in CEFs. The approximate mix is 90% CEFs, plus some in BDCs and the remainder in cash. There are no ETFs in the portfolio. The fund is a closed-end version of RiverNorth's open-end mutual fund, RiverNorth Core Opportunity Fund (RNCIX, RNCOX). The open-end fund has to make provisions for potential outflows of money on a daily basis (something closed-end fund do not have to deal with) so it does hold ETFs as one part of their strategy for dealing with that possibility. For the CEF it's not an issue so they are much less likely to hold ETFs.
The full portfolio at the end of April - the last complete accounting - held 55 CEFs (95% of holdings) and three BDCs - American Capital Ltd. (NASDAQ:ACAS), MVC Capital (NYSE:MVC) and OHA Investment Corp. (NASDAQ:OHAI) - for 4% of holdings. The CEF positions are worth perusing by any CEF investor. They are heavily skewed toward fixed-income funds where the most appealing opportunities lie in today's CEF market. I was interested to see that they include funds I've written about recently as being attractively priced: AllianzGI Diversified Income & Convertible Fund (NYSE:ACV), LMP Capital and Income Fund (NYSE:SCD) and PIMCO Dynamic Credit Income Fund (NYSE:PCI).
Taken together these points make RIV even more attractive in my view. The closer I look the more I like it.
Disclosure: I am/we are long RIV, ACV, PCI. SCD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have no ties to the financial or security industries in any form. My interests are strictly personal. The banker part of the nym has absolutely no relationship to the profession of the same name. Readers should be aware that I am an investing novice. I do not give advice; what I publish is an annotated version of my research notebook. Anyone who finds any securities to be of interest will necessarily want to do his or her complete research and due diligence before acting on that interest. It would be foolish to rely on my conclusions without having done so.