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John Cole Scott

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  • Balancing CEF Data Vs. Portfolio Data When Selecting A Closed-End Fund [View article]
    Thank you W.Kirk. As my father's CEF book was published almost 25 years ago, I expect to update it from my articles at some point.
    Jason, glad you found it helpful.
    Sep 16 08:10 PM | Likes Like |Link to Comment
  • Closed-End Funds: Rising Rates And The Impact On Performance And Yield [View article]
    Here is the link to the Heat Maps' Key
    Aug 21 11:50 AM | Likes Like |Link to Comment
  • Closed-End Funds: Rising Rates And The Impact On Performance And Yield [View article]
    BPS, the Heatmap at is not our business, but a friend's website. I don't notice the heat map categories when looking at it, but will ask Al Patrick who runs the site to add a key.

    Also - we rarely discuss funds in particular in public, except for educational purposes. There are other SA authors who give their ideas to readers. Our goal is to get feedback on idea and cover the structure.

    Kirk, not 100% sure what happened at each fund or fund sectors/managers, but I can share the data file with you if you want to dig deeper and discuss after. My guess is bonds we're called early in cycle and div policies were set too high and boards were reluctant to change levels in line with earnings. For munis there could have also been zeros exposure.

    We just Plan to be tactical as usual. Just wanted a sense of the current.
    Aug 19 11:11 PM | Likes Like |Link to Comment
  • Closed-End Fund Advisors: Second Quarter 2014 CEF Review And Outlook [View article]
    FS, Thanks Markel is a great local company and thought of as a "mini Berkshire". They bought a friend's private company as their first private equity play and carry our E&O insurance. They are a great employer to friends that work there, we enjoy having them as our insurance carrier and they do great work in the community.

    I don't know Tom well, but have had many interactions with Alan and Steve.

    We are working on lots of data to try and help us get to the next level of review of the 50 BDC CEFs that currently exist. Expenses, impact of secondary's, dividend coverage and growth - interest rate sensitivity and how each might handle a downturn in the economy are high on the list. I like to look at peer and security's historical data as a big part of our research approach.
    Jul 22 01:04 PM | Likes Like |Link to Comment
  • Closed-End Fund Advisors: Second Quarter 2014 CEF Review And Outlook [View article]
    Fred, Very well put, thank you. However, I am the type of guy that would argue with my three-year old that a tomato is a fruit not a vegetable.

    I do recognize we are early and do see people are happy with our added coverage. I'll be curious how the comments go on next quarter's research call summary article.
    Jul 22 12:02 PM | Likes Like |Link to Comment
  • Closed-End Fund Advisors: Second Quarter 2014 CEF Review And Outlook [View article]
    Ok, it seems most people dislike our use of BDC CEF to describe the funds. One reason we took so long to cover BDCs was because we kept thinking of them as operating companies and not as traded funds with inefficiencies and yield. We know there are difference in the required portfolio holdings, but Sr. Loan CEFs, especially NHF are unique, ... and yes BDC CEFs have incentive fees unlike traditional CEFs. The deeper I have landed in CEF research and analysis the more exception to the rules I find. As we discuss the future of CEFs I see a path that lies closer to current BDCs for the next decade of innovation and growth for CEFs than simply hiring a manger to lever up a yieldy investment with permanent capital. There are lots of great funds, but what will we IPO from 2015-2025 in the CEF market? That is a question we are working to help answer.

    In my conversations the past few years, most people are not aware that BDCs are a fund, so we added CEF after BDC to clarify and attempt to reduce the confusion we see in our conversations across individual investors and financial advisors.

    We hear some traditional CEF sponsors looking at BDCs and more sponsors doing Trad CEFs and BDC CEFs. I think a year from now we will know if our work in clarifying BDCs as BDC CEFs was early or wrong.

    It feels like i'm beating a clearly dead horse here, but a BDC is a closed-end fund that is a fact not an opinion. We are not making up words, we are not saying that a non closed-end funds is "closed-end fund-like" as I would argue Berkshire, GE, Markel and other operating companies.
    Jul 22 11:54 AM | Likes Like |Link to Comment
  • Closed-End Fund Advisors: Second Quarter 2014 CEF Review And Outlook [View article]
    Ok, Ill show you all an example of a regular CEF not at CEF Connect or BANX is a CEF, IPOed last year in November and reports NAV quarterly It is not a BDC CEF, and not covered by or This does not preclude if from actually being a CEF. Just because they have it one way does not make it right. Now one difference is everyone who get our data is a paying client at our firm. We have told our data clients that we would have more funds covered (and add IPOed funds faster) more data covered, often more timely fundamental data and be. We can add almost any new data point in under two weeks time. For Traditional CEFs we had 29 data points May 1 2012 and have 155 available just over two years later, a 500%+ increase that will continue as we find more we need to understand.

    If you look as a Trad CEFs, BDC CEFs or Regular Operating Companies; BDCs are far more similar to traditional CEFs than operation companies.

    How Are Traditional CEFs Similar To BDC CEFs:

    File, N-2s, ... operating companies do not.
    Have a Net Asset Value (NYSE:NAV) ... operating companies do not.
    Have Transparent Leverage Ratios ... operating companies do not.
    BDCs / CEFs Have A diversified and Actively managed portfolio of securities being created and changed over time. ... operating companies do not.
    Have an Expense Ratios ... operating companies do not.
    Debt-based BDC have duration ... operating companies do not.
    Have tax beneficial treatment by avoiding double taxation if 90%+ is paid out to shareholders
    SEC has BDCs noted a closed-end fund
    Closed-End Fund Association has them as member companies.

    How are BDCs more like operation companies?
    They file like an operating company with the SEC for non N-2s.

    During my career thus far, I have watched REITs gain success as an assets class, Frontier Markets grouping separate from Emerging Markets.

    As I said above, as I 100% control our data collection and reporting guidelines and policies, I get to collect and report data exactly as I chose. There isn't a committee or another person to sign-off on the idea.

    I also like to call BDC CEFs Traditional CEF cousins.

    I would be interested if anyone likes our use of BDC CEFs. I have not seen any positive comments yet.
    Jul 22 12:24 AM | Likes Like |Link to Comment
  • Closed-End Fund Advisors: Second Quarter 2014 CEF Review And Outlook [View article]
    There are lots of great questions on this article and we appreciate the interest and dialogue. I hope my answers are helpful, and apologize in advance for how long this reply post is to all readers. First, a few links to keep the facts straight on traditional CEFs doing Secondary's and Rights offerings (i.e adding capital as a fixed-capital investment):

    SEC Definition of a closed-end fund:

    BDC CEFs are members of The CEF Association, Closed-End Fund Association Member Companies:

    Prospect Capital (NASDAQ:PSEC) Listing at The CEF Association (

    From Prospect's Website: "PSEC is a publicly-traded closed-end investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended."


    The regulations for a traditional CEF to offer a secondary offering of shares is the same as for a BDC CEF, the difference is that a debt-based BDC CEF often trades above Net Asset Value (NYSE:NAV). YTD 2014 for Traditional CEFs there have been 8 press releases dealing with secondary offerings: SRF, OXCL and KYN. During 2013 there were 4 press releases on secondary's that involved KYN and SMF.
    You really need to be at a firm premium to NAV to successfully do Secondary's and Rights offerings, something now common with most CEFs over the long haul. 

    A similar result for raising more capital for a CEF but focused on current owners is a Rights Offering. in 2013 there were press releases covering Rights Offerings involving the following tickers: OXCL, ACP, SMF, GLU, CFP, GRX, DNI, INF, CRF, and CLM. YTD for 2014 there have been press releases involving the following tickers: GRX, HQL, HQH, GGT, CUBA, CFP, and OXCL.

    Now, doing an at the market (ATM) offering almost daily is not done by any traditional CEFs to our knowledge, but it is also only done by a few BDC CEFs and, in our opinion, is better than doing regular secondary's for both the impact to shareholders (market price) and in cost to the fund. PSEC is still permanent capital in that shares are not redeemable like in open-end funds or with creation units for exchange traded funds.


    IMO, we are not forcing a new category; both traditional and BDC CEFs are "closed-ended management companies" as referenced above. When there were only 5 debt-based BDC CEFs in 2004 to 2007 -- there was not much of a reason to group and analyze them together. Now that they are half to size of state and national municipal closed-end funds by market cap, with 50 funds to choose from we think it is time to monitor them at a closer level. 2 years from now we would not be surprised if there were over 100 and they eclipsed muni CEF in market cap (they biggest major group in the CEF neighborhood.)

    We decided to clarify them as Trad CEFs and BDC CEFs to make it easier in our system and in looking at them from our experience. I would agree if one looked at REITs or MLPs as tried to call them CEFs or CEF-like and that it would be "forced" or "artificial" as they are not investment companies. We came across BDC CEFs first at a closed-end fund conference in NYC in 2011 and again at different CEF conference in 2013. We saw how much things had changed, and how well they had grown in number without much understanding of them by most investors or financial advisors. To be created or do secondary's both Trad and BDC CEFs have to file a N-2 Filing with the SEC. This is where we first came to see BDC data in our collection efforts and was a factor in deciding to add them our coverage universe.
    I agree with Ken Fincher at First Trust in a recent Investius video interview talking about CEFs needing innovation to get new successful IPOs to market. We would ADD that BDCs help give an idea on how the industry should focus on investment objectives not available in open-end and ETFs to give CEFs their structure advantages in a competitive market. 

    When talking about CEFs to investors or advisors at conference we had developed the following three parts that made a CEF a CEF, even before we considered covering BDC CEFs: 1. Active Management 2. Permanent Capital and 3. Investor Liquidity. We would also throw in the common use of leverage and being a 40 act investment ... so more regulated and diversified than operating companies, also having the tax benefits of a RIC vs operating company.

    I think that BDC CEFs are far closer to traditional Loan CEFs and high yield CEFs than those two group are to Non-US Equity CEFs. Also, KED a MLP CEF only reports NAV quarterly, a few funds report it monthly and a handful report it weekly. IMO, not having a Daily NAV is not enough of a line to say a fund is a CEF or not.


    Our goal is to shares trends in the CEF structure with this data and to help people see what is happening by major CEF groups. I would love to covers the various sub-sectors with the slides, but the call is already running over 90 minutes and the slide deck has grown to almost 50 slides. We talk about sub-sectors like MLP CEFs, REIT CEFs, Non-US Equity, and Covered Call CEFs (just as a few examples) in the prepared remarks, and will cover them, as there is interest, in the pre-submitted or live Q&A. This is good feedback though and I will look into adding one summary slide on major sub-sectors for next quarter.

    Why don't Morningstar and Lipper cover BDC CEFs? We have talked about it with top people at both organizations and I would be surprised if they were not by year-end, there has been more interest at Lipper than M* and I encourage investors in BDC CEFs and interest in BDC CEFs to request better research coverage. CEF Connect is a website powered by M* data and paid for by Nuveen as part of the substantial after-market support. They would have to decide to add this data as it would not be a M* decision.

    I am glad to work at a business which my family owns and controls so that when I wanted to add BDC CEFs to our resources I just had to train my data manager and he go our data analysts adding 50 new ticker symbols to our weekly work-flow.


    As a for profit Registered Investment Advisory Firm and having to deal with giving investment advice only to individuals where we can asses their time horizon and risk profile, I have never been comfortable giving best picks. As we have sold a purchase intra-day ... when the outlook changed dramatically, it does not feel right. While, it is true that is very uncommon and only has happened once in my recollection. We prefer to let our paying clients benefit from our expertise, as it is their money that allows us to do everything with our data and research on CEFs. We are happy to teach others that either can't or won't' hire us how to fish, vs. give them a fish.


    Will spell out total return where we can as I suspect you are not the first to be confused by that - the Barrons reporter even called me to confirm the data was total return. I'll chalk that up to industry over-use of acronyms.

    Regarding the typos, can you give me the slide # as I can't seem to find it.


    We publish on SA as we like the active feedback. We live in CEF-land and the outside perspective is helpful as we think about what data projects or research articles to tackle next. Thank you for your input and feed back. If there are more questions, please let us know. 
    Jul 21 06:14 PM | Likes Like |Link to Comment
  • BDC CEFs Poised To Perform Well In A Rising Rate Environment: Potential For Growing Income & Positive Total Return [View article]
    RICs encompass unit investment trusts (UITs), Open-end funds, traditional closed-end funds, business development company CEFs and exchange-traded funds.

    FGB is a Trad CEF that owns Mostly BDC CEFs, just like FOF is a Trad CEF that mostly owns Trad CEFs.

    We believe most people think of BDC CEFs as operating companies and wanted to make their structure easier to see their connection to their close-end fund cousins. There are also private closed-ended management companies, but as we focus on 40 Act, actively managed funds that trade publicly, do not cover them.
    Jul 13 08:18 PM | Likes Like |Link to Comment
  • BDC CEFs Poised To Perform Well In A Rising Rate Environment: Potential For Growing Income & Positive Total Return [View article]
    Berloe, BDC CEFs are closed-ended Managment Companies that operate under 40 Act and the 33/34 Act.

    From the Article. "BDC CEFs are not new investment structures. They are regulated investment companies, created by Congress in 1980 to help spur investment in smaller companies and give investors access to strategies previous only available to accredited or high net worth investors. BDC CEFs generally make loans and or invest in smaller US companies and pass on the interest to shareholders as income in a similar fashion to REITs and MLPs.

    BDC CEFs are "flow through" vehicles for tax purposes and pay no corporate taxes as long as they distribute 90% of their annual income to shareholders. We follow them alongside our work in traditional CEFs as *** they meet our firm's CEF definition: active portfolio management, fixed capital structure and investor liquidity through listing on exchanges. *** As the lending market from traditional banks has waned, BDC CEFs have increased lending to both growing and distressed companies. This can be a very profitable business when done well on a consistent basis. We started actively tracking BDC CEFs in our weekly CEF Universe data in March of 2014 and currently record 45 data points per fund.
    Jul 8 11:24 PM | Likes Like |Link to Comment
  • BDC CEFs Poised To Perform Well In A Rising Rate Environment: Potential For Growing Income & Positive Total Return [View article]
    Stevlg, We publish articles on concepts and data; especially on topics we don't see others publishing. We have found it very tricky over time to give investment advice to strangers from a compliance perspective and we also owe a duty to our paying clients to offer them our advice and experience in building and managing a portfolio.

    BDC Buzz on SA does a great job digging into BDC CEFs. He has been a great asset for our firm to learn from as we have added BDC coverage in our data coverage and client accounts. He is also not bound by the same compliance and business limits for giving ideas on a forum like SA.

    Alan, we have no idea when a rate increase will transpire - or for how long. We just wanted to look in the past to see how yield and total return was impacted during that period on loan-based BDCs. Can you give me some specific on the "high-flyers" in the sample that tend to crash?

    Keltus, Problem loans will clearly occur during a financial crisis. A rising rate environment does not necessarily lead to another 2008-2009.
    Jul 8 01:17 PM | 1 Like Like |Link to Comment
  • How To Manage A Closed-End Fund Portfolio Like An Expert, Beyond The 'CEF Trifecta' [View article]

    I think to buy a ETN you need to know how it is different than a ETF, I am in no way an expert on ETFs and my client base is too conservative to be comfortable owning a 2X leveraged CEF product.

    I am a fan of many ways to get exposure to CEFs, competition and options are the basis of The US capital markets. There have been some thoughtful articles on SA covering CEFL as well as a thread on the Morningstar CEF Discussion Forum:
    Jun 17 12:15 PM | Likes Like |Link to Comment
  • How To Manage A Closed-End Fund Portfolio Like An Expert, Beyond The 'CEF Trifecta' [View article]
    Keelac, Fairly safe is a relative term. We don't comment on individual securities very often for compliance and business reasons. However, I would look a CEF and decide: 1. Do you want exposure to the sector / manager? 2. How is it performing (NAV) 3. What am I paying for the CEF, normal, too much or a good deal. If you want a fund, buying it after a dividend cut ( as longs as there are not more soon after) can be a very attractive entry point for investors.
    Jun 17 12:08 PM | Likes Like |Link to Comment
  • The Closed-End Fund Trifecta: How To Analyze A CEF [View article]

    Going to that link loads my preferences at CEF Connect vs. what you were trying to show me. If the market price of a CEF is above NAV then it is an absolute premium and if the market price is below NAV it is an absolute discount.
    Jun 4 09:26 AM | Likes Like |Link to Comment
  • The Best-Performing Utility CEFs Over The Last 12 Months. [View article]
    Robert, Thank you for the kind words. We are very pleased there are more people adding to the closed-end fund conversation on SA.

    Best, JCS
    May 21 11:43 AM | Likes Like |Link to Comment