The average discount on close-end bond funds is a historically large 6.5%, writes Brendan Conway in Barron's, and the discount on the roughly dozen funds launched in the last year is even higher at 8.6%. Investors are likely correct in being wary of new products - especially at a time when interest rates look to be headed higher - but a couple of funds from the class of 2013 may be worth a look.
"We like fear, and we like dislocations in the marketplace," says Patrick Galley, CIO of RiverNorth Capital Management. He's a buyer of Pimco Dynamic Credit Income Fund (PCI), managed by rising star Dan Ivascyn. PCI is up 2.6% YTD, but NAV is higher by 4%, and buyers get a discount to NAV of 8% and a distribution rate of greater than 8%.
Galley isn't alone on this one. Boaz Weinstein's hedge fund has piled in as well, becoming PCI's largest single owner. Weinstein has bought major chunks of other funds as well, and Pine River Capital picked up a big slice of another of the class of 2013 - the DoubleLine Income Solutions Fund (DSL). The entry of hedge funds into the $250B closed-end arena - a market too small for most institutional investors - is another sign of bargains to be had.
David Tepper of Tepper Capital Management (not that Tepper) has identified the "1,000 x 1,000" club - bond CEFs trading at discounts of 10% or more which have seen NAVs rise by 10% or more over the last year. One of the class of 2013 makes the list - the BlackRock Multi-Sector Income Trust Fund (BIT).