Weekly CEF Roundup: Rebound Week And Karpus Targets MSP
Summary
- CEFs rebound with the market.
- 23 out of 32 sectors were positive by price this week, and 23 of out 32 sectors were positive by NAV.
- Karpus Investment Management Targets MSP.
The Weekly CEF Roundup will be put out at the start of each week to summarize recent price movements in closed-end fund [CEF] sectors in the last week, as well as to highlight recently concluded or upcoming corporate actions on CEFs, such as tender offers. Most of the information has been sourced from CEFInsight or the Closed-End Fund Center. I will also link to some articles from Seeking Alpha that I have found for useful reading over the past week. The searchable tag for this feature is "cildoc." Data are taken from the close of Friday Feb. 16, 2018.
Weekly performance roundup
CEFs rebounded with the markets this week, with 23 out of 31 sectors being positive (up from 2 last week), and with an average price return of +1.74% (up from -2.93%). In a reversal from last week, all five leaders were equity CEF sectors, led by U.S. tax-advantaged equity (+4.83%), while all five laggards were fixed income sectors, led by New Jersey munis (-0.54%).
(Source: Stanford Chemist, CEFConnect)
NAV performance was similar to price performance. 23 out of 31 sectors were positive on NAV (up from 6 last week), while the average NAV return was +1.64% (down from -3.17%). The leading sector by NAV was emerging market equity (+4.51%) while the chief laggard was national munis (-0.52%).
(Source: Stanford Chemist, CEFConnect)
The sector with the highest premium is U.S. utilities (-0.32%), while the sector with the highest discount is Latin America equities (-12.16%). The average sector discount is -6.36% (up from -6.44% last week).
(Source: Stanford Chemist, CEFConnect)
U.S. general equity showed the largest premium/discount increase (+1.50%), while U.S. growth & income showed the largest premium/discount decline (-1.09%). The average change in premium/discount was +0.08% (down from +0.25% last week).
(Source: Stanford Chemist, CEFConnect)
The sector with the highest average 1-year z-score is Asian equities (+0.67) while the sector with the lowest z-score is New Jersey munis (-2.28). The average z-score is -0.61 (up from -0.70 last week).
(Source: Stanford Chemist, CEFConnect)
The sector with the highest yield is MLPs (9.90%), followed by U.S. real estate (8.98%), multi-sector income (8.98%), global growth & income (8.93%) and global equity dividend (8.62%). Discounts and z-scores for the sectors are included for comparison. The average sector yield is 6.68% (down from 6.80% last week).
(Source: Stanford Chemist, CEFConnect)
Individual CEFs that have undergone a significant decrease in premium/discount value over the past week, coupled optionally with an increasing NAV trend, a negative z-score, and/or are trading at a discount, are potential buy candidates.
Ticker | P/D decrease | Yield | P/D | z-score | Price change | NAV change |
(SZC) | -5.19% | 8.97% | -10.33% | -2.3 | -3.17% | 2.44% |
(OXLC) | -4.75% | 16.12% | 0.40% | -1.0 | -1.47% | 3.19% |
(GCV) | -4.31% | 8.48% | 1.94% | 0.5 | -0.17% | 4.04% |
(EDI) | -3.89% | 12.02% | -2.16% | -1.0 | -1.84% | 2.07% |
(FGB) | -3.53% | 11.31% | 2.33% | 0.6 | 0.00% | 3.45% |
(ZTR) | -3.41% | 10.96% | 7.13% | 1.7 | -0.48% | 2.68% |
(GGO) | -3.04% | 4.64% | -15.62% | -1.6 | 0.25% | 3.87% |
(CIF) | -2.98% | 9.35% | 4.83% | 1.3 | -2.76% | 0.00% |
(MFV) | -2.95% | 9.89% | 3.56% | 0.0 | -1.77% | 1.03% |
-2.94% | 0.46% | -31.65% | -0.4 | 0.00% | 4.29% |
(Source: Stanford Chemist, CEFConnect)
Conversely, individual CEFs that have undergone a significant increase in premium/discount value in the past week, coupled optionally with a decreasing NAV trend, a positive z-score, and/or are trading at a premium, are potential sell candidates.
Ticker | P/D increase | Yield | P/D | z-score | Price change | NAV change |
(ASA) | 10.31% | 0.36% | -8.60% | -3.5 | 4.99% | -6.85% |
(GRF) | 9.24% | 6.46% | -9.44% | -2.0 | 2.74% | -7.75% |
(PGP) | 7.38% | 10.81% | 23.08% | -1.9 | 9.60% | 3.03% |
(CRF) | 6.42% | 18.15% | 17.04% | -0.9 | 2.82% | -2.82% |
(SPE) | 5.36% | 8.82% | -7.99% | 0.6 | 1.89% | -4.04% |
(CLM) | 5.18% | 18.43% | 14.30% | -0.9 | 1.86% | -2.75% |
(ECC) | 4.89% | 12.85% | 9.84% | -0.8 | 4.66% | 0.00% |
(CET) | 3.95% | 3.70% | -16.49% | -4.0 | 2.81% | -2.05% |
(CAF) | 3.30% | 4.83% | -13.09% | -0.1 | 7.03% | 2.98% |
(GFY) | 2.86% | 5.34% | -5.22% | 2.0 | 2.77% | -0.33% |
(Source: Stanford Chemist, CEFConnect)
Recent corporate actions
These are from the last month and are quoted from Closed-End Fund Center or CEFInsight (email alerts); any new news in the past week has a bolded date:
January 18, 2017 | The Thai Fund, Inc. (NYSE:TTF) announced today that it will close its share register books at the close of business on January 19, 2018 and that trading of the Fund’s stock on the NYSE will be suspended before the market opens on January 22, 2018. The proportionate interests of stockholders in the assets of the Fund shall be fixed on the basis of their respective holdings at the close of business on the Effective Date, and the Fund expects to make a final liquidating distribution to stockholders as of the Effective Date on or about January 26, 2018.
Upcoming corporate actions
These are from the last month and are quoted from Closed-End Fund Center or CEFInsight (email alerts); any new news in the past week has a bolded date:
February 8, 2017 | The Cushing Renaissance Fund (SZC) announced on Feb. 8 a transferable rights offering for holders of the fund's common shares as of the record date of February 16, 2018. Holders will receive one Right for each common share held, and can purchase one new common share for every three Rights held (1 for 3). Any record date shareholder who owns fewer than three common shares as of the record date will be entitled to subscribe for one common share. Fractional common shares will not be issued. The release noted that the subscription price will be determined on the expiration date, and will equal 90% of the average of the last reported sales price of a common share of the fund on the NYSE on the expiration date and each of the four preceding trading days. If, however, that average price is less than 78% of the fund's NAV per share at the close of trading on the NYSE on the expiration date, the subscription price will be 78% of the fund's NAV per share as of that day's close of trading on the NYSE. The subscription period will commence on the record date, and is expected to expire on March 22, 2018, unless extended. The Rights are expected trade on the NYSE under the symbol "SZC RT" during the offer. For more details on this offering, see the fund's press release, and related shelf registration statement and prospectus.
February 5, 2017 | The GDL Fund (NYSE:GDL) (the “Fund”) previously announced the approval in principle by its Board of Trustees of an offering (the “Offering”), to be made to the Fund’s existing preferred shareholders, of non-transferable rights to subscribe for and purchase newly designated Series C Cumulative Puttable and Callable Preferred Shares (the “New Preferred”). The pricing committee of the Fund’s Board of Trustees has now approved the Offering. The New Preferred will pay distributions quarterly at an annualized dividend rate of 4.00% of the $50.00 per share liquidation preference of the New Preferred for the quarterly dividend periods ending on or prior to March 26, 2019 (“Year 1”). At least 30 days prior to the end of Year 1, the Fund’s Board of Trustees will determine and publicly announce a reset fixed dividend rate that will apply for the next eight quarterly dividend periods (“Year 2” and “Year 3”). At least 30 days prior to the end of Year 3, the Fund’s Board of Trustees will determine and publicly announce a reset fixed dividend rate that will apply for all remaining quarterly dividend periods prior to the mandatory redemption date for the New Preferred of March 26, 2025. Each reset dividend rate will be determined by the Fund’s Board of Trustees or a committee thereof in its sole discretion, and such rate will be not less than an annualized rate of 4.00% and not greater than an annualized rate of 6.00%.
January 20, 2017 | Blackstone / GSO Senior Floating Rate Term Fund (BSL) has filed a registration statement with the Securities and Exchange Commission (“SEC”) relating to the offering of additional common shares of the Fund pursuant to a transferable rights offering (the “Rights Offering”). If approved by the Fund’s Board of Trustees (the “Board”), the Fund expects to issue transferable subscription rights (“Rights”) to its common shareholders on a record date to be set by the Board (the “Record Date”). Shareholders as of the Record Date (“Record Date Shareholders”) will be able to subscribe for new common shares of the Fund (the “Primary Subscription”). The exercise price for the Rights Offering will be determined in the context of the market prior to the filing of the Fund’s final prospectus. Record Date Shareholders will receive one Right for each common share held on the Record Date. For every three Rights held, a holder of Rights may buy one new common share of the Fund. No assurance can be given that a market for the Rights will develop. The Rights Offering is subject to Board approval. There is no assurance the Board will approve the Rights Offering.
January 19, 2017 | The Mexico Equity and Income Fund, Inc. (NYSE: MXE) today announced that it has commenced a tender offer to purchase up to 367,170 common shares of the Fund (or 5% of the Fund’s outstanding shares) at 95% of the net asset value per common share as determined at the close of business on the Termination Date (as defined below). In accordance with the rules of the U.S. Securities and Exchange Commission, the Fund may purchase additional shares not to exceed 2% of the outstanding shares without amending or extending the tender offer. The tender offer will expire at 5:00 p.m., Eastern Time, on February 23, 2018, unless the tender offer is extended. Phillip Goldstein, Chairman of the Board, commented: “The Board approved this tender offer in recognition of concerns by some shareholders about the discount to NAV at which the Fund’s shares have been trading recently. In the future, the Board may consider other measures to address the discount including one or more additional tender offers and adoption of a managed distribution policy.”
January 18, 2017 | Eagle Point Credit Company Inc. (ECC) today announced that it has priced an underwritten public offering of 1,950,000 shares of its common stock at a public offering price of $18.25 per share, which will result in net proceeds to the Company of approximately $33.7 million after payment of underwriting discounts and commissions and estimated offering expenses payable by the Company. In addition, the Company has granted the underwriters a 30-day option to purchase up to an additional 292,500 shares of common stock to cover overallotments, if any. The Company plans to use the net proceeds from the offering of its common stock to acquire investments in accordance with its investment objectives and strategies, to make distributions to the Company’s stockholders and for general working capital purposes. The offering is expected to close on January 22, 2018, subject to customary closing conditions.
Recent activist or other CEF news
These are from the last month and are quoted from Closed-End Fund Center or CEFInsight (email alerts); any new news in the past week has a bolded date:
February 9, 2017 | Karpus Management, Inc. (dba Karpus Investment Management [KIM]) filed a new 13D on Friday (Feb. 9) disclosing that it holds 2,545 ARPs (70.69%) issued by the Franklin Limited Duration Income Trust (FTF). Item 4 of the filing noted: KIM has purchased Shares for the Accounts for investment purposes. However, KIM reserves the right to contact management with regard to concerns that they have with respect to the Fund. This may include letters to the Board and/or other communications with Fund management. Being an independent registered investment advisor, with a specialty focus in closed end funds, the profile of this security fits the investment guidelines for various Accounts. Shares have been acquired since February 02, 2009.
February 9, 2017 | Karpus Management, Inc. (dba Karpus Investment Management [KIM]) filed a new 13D on Friday (Feb. 9) disclosing that it holds 1,477,959 shares (26.79%) of Oxford Lane Capital Corp. (OXLC). Item 4 of the filing noted that: KIM has purchased Shares for the Accounts for investment purposes. However, KIM reserves the right to contact management with regard to concerns that they have with respect to the Fund. This may include letters to the Board and/or other communications with Fund management.
February 8, 2017 | Karpus Management, Inc. (dba Karpus Investment Management) filed a 13D/A on Feb. 8 disclosing that it held 1,364,466 shares (23.5%) of the Madison Strategic Sector Premium Fund (MSP). Item 4 noted that Karpus sent a letter to the fund dated Feb. 7 containing a non-binding proposal: the shareholders of the Madison Strategic Sector Premium Fund ("MSP" or the "Fund") request that the Trustees promptly consider authorizing a self-tender offer for all outstanding common shares of the Fund at or close to net asset value ("NAV"). If more than 50% of the Fund's outstanding common shares are tendered, the tender offer should be cancelled and the Board should take the steps necessary to liquidate, merge, or convert the Fund to an open-end mutual fund or exchange traded fund.
Distribution changes this month and next
These are sorted in ascending order of distribution change percentage. Funds with ex-dates in the current and in the next month are included. Note that changes of less than 5% are not listed as those are considered to be minor. Any distribution declarations made this week are in bold.
In this week's edition, I've also added monthly/quarterly information as well as yield, coverage (after the boost/cut), discount and 1-year z-score information for newly added funds. However, note the yield, coverage, discount and z-score information will not be updated every week. I've separated the funds into two sub-categories, cutters and boosters, arranged in descending order of distribution change magnitude.
Cutters
- -18.9%: Eaton Vance California Municipal Bond Fund (EVM) cuts from $0.0487 to $0.0395 monthly (ex-date Feb. 20, announced Feb. 1). Yields 4.38%, discount -9.67%, z-score -2.4, coverage 114% (as of 2/2).
- -18.6%: Dreyfus Strategic Municipals (LEO) cuts from $0.0473 to $0.035 monthly (ex-date Feb. 8, announced Jan. 26). Yields 4.90%, discount -2.94%, z-score -1.2, coverage 115% (as of 1/26).
- -15.6%: Dreyfus Strategic Municipal Bond Fund (DSM) cuts from $0.0415 to $0.035 monthly (ex-date Feb. 8, announced Jan. 26). Yields 5.00%, discount -1.45%, z-score +0.4, coverage 111% (as of 1/26).
- -14.6%: Dreyfus Municipal Income (DMF) cuts from $0.0473 to $0.035 monthly (ex-date Feb. 8, announced Jan. 26). Yields 4.84%, discount -7.62%, z-score -1.8, coverage 130% (as of 1/26).
- -13.0%: Eaton Vance New York Municipal Bond Fund (ENX) cuts from $0.0515 to $0.0448 monthly (ex-date Feb. 20, announced Feb. 1). Yields 4.67%, discount -12.33%, z-score -3.4, coverage 110% (as of 2/2).
- -8.1%: Eaton Vance Municipal Bond Fund (EIM) cuts from $0.0521 to $0.0479 monthly (ex-date Feb. 20, announced Feb. 1). Yields 4.83%, discount -10.78%, z-score -3.7, coverage 110% (as of 2/2).
- -7.7%: Tekla Healthcare Investors (HQH) cuts from $0.52 to $0.48 quarterly (ex-date Feb. 27, announced Feb. 16). Yields 8.29%, discount -6.60%, z-score -1.4, coverage -2% (as of 16/2).
- -7.0%: Tekla Life Sciences Investors (HQL) cuts from $0.43 to $0.40 quarterly (ex-date Feb. 27, announced Feb. 16). Yields 7.95%, discount -3.19%, z-score -0.5, coverage -4% (as of 16/2).
- -5.6%: Flaherty & Crumrine Total Return Fund (FLC) cuts from $0.126 to $0.119 monthly (ex-date Feb. 20, announced Jan. 24). Yields 7.12%, discount -6.74%, z-score -3.5, coverage 102% (as of 1/26).
- -5.5%: First Trust Senior Floating Rate Income Fund II (FCT) cuts from $0.246 to $0.225 monthly (ex-date Feb. 1, announced Jan. 22). Yields 5.56%, discount -8.69%, z-score -1.5, coverage 105% (as of 1/26).
Boosters
- +5.1%: Invesco Quality Municipal Income Trust (IQI) boosts from $0.0546 to $0.0574 monthly (ex-date Feb. 14, announced Feb. 1). Yields 5.80%, discount -10.89%, z-score -3.1, coverage 124% (as of 2/2).
CEF analysis from around Seeking Alpha...
Recommended reads are in bold.
ADS Analytics presents Weekly Fund Wrap: The Harder They Fall (Feb. 12)
George Spritzer, CFA presents This Multi-Asset Closed-End Fund Trades At An Attractive Discount And Has A Termination Date (Feb. 12) and This Discounted Blue Chip Closed-End Fund Continues To Beat The Market (Feb. 16)
*Stanford Chemist presents 'Black Thursday 2018' Biggest CEF Gainers And Losers (Feb. 13), 2018's YYY/CEFL Index: Summary Of Changes And Post-Rebalancing Reversion (Feb. 14), Here's Why You Shouldn't Pay $1.10 For A Dollar Of Investment Grade Bond Assets (Feb. 18), Get Out Of This PIMCO CEF While You Can (Feb. 19)
*To subscribers: these link to the public version of the article, which you will already have seen in the members section.
Macro/market section
Fear & Greed Trader presents S&P 500 Weekly Update: The Rally Continues; The Question Now, Have We Seen The Lows? (Feb. 17)
Jeff Miller presents Weighing The Week Ahead: Is The Coast Clear? (Feb. 18)
Lance Roberts presents The Great Bear Market of 2018 (Feb. 18)
Commentary and actionable takeaway
(Normally exclusive to members of the Cambridge Income Laboratory, but is released to public as part of our free trial promotion)
This week's commentary will be relatively short due to the holidays. Of course, the major story in the markets was the rally extending to 5 days in a row. With markets back in risk-on mode, equity CEFs outperformed while fixed income CEFs took a breather.
Two Tekla CEFs, Tekla Healthcare Investors (HQH) and Tekla Life Sciences Investors (HQL) reduced their distributions by about 8% but this is no reason to panic, as this cut was in line with their 2% per quarter managed distribution policy (see Tekla Healthcare Investors Cuts Distributions By 8%. But Don't Panic And Here's What To Do for a separate piece on the topic).
The top premium/discount gainers are populated with many U.S. general equity CEFs, but as I've written about before, this is simply due to NAVs not updating daily, and thus the change in premium/discount is a mirage. Top losers in premium/discount include The Cushing Renaissance Fund (SZC), which announced a transferable rights offering last week. I may do a separate post on this offering. The discount of SZC over the past several months has been highly erratic, which is interesting.
(Source: CEFConnect)
Finally, it's been reported on various sites that Karpus Investment Management filed a new 13D on February 9 disclosing that it holds 1,477,959 shares (26.79%) of Oxford Lane Capital Corp. (OXLC). However, I would like to stress that this refers to the preferred shares not the common shares.
Karpus has also taken action against the Madison Strategic Sector Premium Fund (MSP) with a 23.5% position. The activists seek to have the fund authorize a self-tender for all outstanding shares, or liquidation should greater than 50% of the shares be tendered. MSP is a domestic option income fund that trades with a yield of 8.99%, a discount of -5.70% and a 1-year z-score of -0.80. MSP has performed quite miserably over the past year, with a NAV return of -4.59% (excluding dividends), compared to for instance the Eaton Vance Enhanced Equity Income Fund (EOI) (+8.30%), an option income fund that we own in our portfolios.
Perhaps the poor performance of MSP led it to becoming targeted by Karpus. If the fund were a better performer, I might have given more thought to using it to fulfill my exposure to domestic option income equity while harvesting the alpha from discount contraction should Karplus be successful in their activist. But alas, that is not the case for MSP.
This article was originally published to members of the Cambridge Income Laboratory about 1 week ago.
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