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Closed-End Fund Advisors: Fourth Quarter 2014 CEF/BDC Review And 2015 Outlook
- Sr. Loan, MLP and BDCs are at significant discounts on a historical basis.
- Municipal Bond CEFs outperformed the S&P 500 in 2014 by over 400 BPs.
- Expect CEF Activist Activity to Increase Dramatically in 2015.
Closed-End Fund Advisors: Third-Quarter 2014 CEF/BDC Review And Outlook
- CEF discounts are very attractive at the end of third-quarter 2014.
- 100% of Municipal Bond CEFs had positive NAV Total Return for the quarter but 39% had negative market price total returns and now trade at an average -8% discount.
- Debt-based BDCs ended the quarter at a -3% discount to NAV (-8% wider than Q2'14) and an average 9.6% yield.
BDC Boot Camp: An Introduction To The 9.7% Yield Animals, Debt-Based Business Development Companies
- The similarities between traditional CEFs and BDCs are what initially drew us to the structure. However, it is important to understand both the similarities and differences for both funds.
- Forty-two of the fifty-one publicly listed BDCs are debt-based, or have 66.6%+ debt investments according to our definition, and have an average yield of 9.7% as of September 19, 2014.
- The average BDC has $696M in market cap and trades on average $6.4M a day. When compared to traditional taxable CEFs, the debt-based BDCs are generally 5X more liquid.
- BDCs handled rising rates well in the past. There was a 4%+ yield increase, for 30-day Libor from March 2004 to September 2007.
- There was a 4.8% BDC yield increase, on average, for the 5 Debt-based BDCs that existed. The average market price TR was +32%, while The S&P 500 was up 42%.
Balancing CEF Data Vs. Portfolio Data When Selecting A Closed-End Fund
Sep. 16, 2014 • 9 Comments
- A closed-end fund is at its basic sense equity exposure to an active manager’s results.
- You should like the pricing and the investment exposure to own shares no matter who is the portfolio manager.
- A CEF's Fundamental data is part of the fund’s disclosures on a typically quarterly basis. Its CEF Data is based on NAV and Mkt Price.
- The key for CEF analysis to be very successful is to get in or out of a fund when you find the right level of divergent behavior between these trends.
Closed-End Funds: Rising Rates And The Impact On Performance And Yield
Aug. 19, 2014 • 8 Comments
- Closed-end funds are known for yield, with the average taxable CEF yielding 7.4% (as of 8/15/14).
- 60% or 361 current CEFs existed when rates rose from 1% in March, 2004 to over 5% in September, 2007.
- Of those 361 funds, 97.2% changed their dividend policy on an average of -2.5% and had a 43-month average total return of +28.48%.
- Only 23 CEFs (6.4%) had a negative total returns during the time period.
- 97% of national municipal CEFs changed their dividend on average -19% but experienced total returns of +17.1%.
Closed-End Fund Advisors: Second Quarter 2014 CEF Review And Outlook
- Traditional CEFs Ended The Quarter with 585 Funds Totaling $270B with an average discount of -6.1% and yield of 6.8%.
- BDC CEFs Ended The Quarter with 50 Funds Totaling $32B with an average discount of -0.17% and yield of 9.4%.
- There Were 2 Traditional CEF IPOs and 2 BDC CEF IPOs During the Quarter: Raising $810M in Combined Assets.
BDC CEFs Poised To Perform Well In A Rising Rate Environment: Potential For Growing Income & Positive Total Return
Editors' Pick • Jul. 8, 2014 • 16 Comments
- Historically BDC CEFs offer the potential for both an increase in portfolio cash flow and total return during a period of rising interest rates.
- We reviewed how loan-based BDCs did when 30 day LIBOR rates rose +4.4% from 1.097% on March 1, 2004 to 5.493% on September 30, 2007.
- We looked at how high yield and loan traditional CEFs did over the same time period; on average there was a +20% performance relative alpha and +9% yield relative alpha.
How To Manage A Closed-End Fund Portfolio Like An Expert, Beyond The 'CEF Trifecta'
- What's next once you learn how to tell if a CEF is 1. a good value, 2. has a sustainable dividend and 3. the manager is performing well?.
- How many CEFs in a portfolio give the ability for alpha, but avoid being too concentrated?.
- When does relative value swapping of a CEF (even a munis) make sense on an after tax basis?.
Closed-End Fund Discounts: A Master-Class In Nuance
May. 20, 2014 • 3 Comments
- Closed-end funds, as a whole, have historically traded at discounts to NAV.
- Selling a CEF at a lower discount to NAV than purchased, is a common goal, but does not guarantee investment success.
- CEF volatility, correlations and discount trends are far more important, in our experience, than pure discounts.
First Quarter 2014 CEF Review And Outlook: Discounts, Yield, IPOs And Activist Activity
- Equity CEFs ended the quarter with -8% discounts to NAV and an average 7.8% market yield.
- Bond CEFs ended The quarter with -5.7% discounts to NAV and an average 7.4% market yield (taxable) and 6.3% market yield (municipal).
- IPO and activist activity was light during the quarter with all meaningful activity during March: 2 IPOs and 3 activist updates of note in VBF DCA, and APB.
What Does A Closed-End Fund's Leverage Actually Cost? Achilles' Heel Or An Investor's Salvation?
Mar. 25, 2014 • 8 Comments
- The ability to use permanent leverage is an advantage to the CEF Structure.
- The cost of leverage reduces the net investment income available to pass on to shareholders.
- We think investors should understand their fund's leverage cost and what cost of leverage is normal for a CEF grouping.
- The Future Of Closed-End Funds: Yield May No Longer Be The Marketing Plan
How Municipal Bond Dividend Cuts Impact NAV Performance And Investor Sentiment
Feb. 6, 2014 • 3 Comments
- Interview With Brian Mitts, Chief Operating Officer Of NexPoint Advisors
What Is The Deal With Premiums In MLP CEFs?
Nov. 23, 2013 • 22 Comments
- How To Analyze Destructive Return Of Capital For Closed-End Funds
- Never Buy A Closed-End Fund On The IPO? Patience Proves A Better Outcome For Investors
UNII And Earnings Trends: 95% Predictive For Closed-End Bond Fund Dividend Cuts
Editors' Pick • Mar. 12, 2013 • 8 Comments
- Top 1% Muni Bond CEF: Searching For Above Average Quality And Below Average Pricing
The Closed-End Fund Trifecta: How To Analyze A CEF
Jan. 16, 2013 • 35 Comments
CEF Q4 2012 Review/2013 Outlook: Dividend Cuts, Solid IPO Results And Discounts Resurfaced
Jan. 12, 2013 • Comment!
- Contrarian Investing In Closed-End Funds: Is Anything Still Cheap?
CEF Dividend Increases And Decreases: 38% Of Municipal Bond Funds Cut Distributions By 6% On Average
Dec. 13, 2012 • 8 Comments
- Will Closed-End Muni Investors See Dividend Cuts Or Raises In 2013?
- Keating Capital: Late Stage Pre-IPO Investing With Permanent Capital, Investor Liquidity