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Weekly CEF Roundup: Kayne Anderson Roll-Up And Legal Victory For HFRO/NHF



  • A middling week for CEFs.
  • 14 out of 32 sectors were positive by price this week, and 13 of out 32 sectors were positive by NAV.
  • Kayne Anderson proposes a roll-up of its funds, and a legal victory for HFRO/NHF.

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 (email alerts) 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. 23, 2018.

Weekly performance roundup

14 out of 31 sectors were positive (down from 23 last week) and the average price return was -0.13% (down from +1.74%).

(Source: Stanford Chemist, CEFConnect)

13 out of 31 sectors were positive on NAV (up from 6 last week), while the average NAV return was 0.02% (up from -3.17%).

(Source: Stanford Chemist, CEFConnect)

The sector with the highest premium is MLPs (-1.25%), while the sector with the highest discount is Latin America equities (-11.95%). The average sector discount is -6.51% (down from -6.36% last week).

(Source: Stanford Chemist, CEFConnect)

U.S. real estate showed the largest premium/discount increase (+1.34%), while energy/resources equities showed the largest premium/discount decline (-1.78%). The average change in premium/discount was -0.15% (down from +0.08% last week).

(Source: Stanford Chemist, CEFConnect)

The sector with the highest average 1-year z-score is MLPs (+0.67) while the sector with the lowest z-score is CA munis (-2.60). The average z-score is -0.67 (down from -0.61 last week).

(Source: Stanford Chemist, CEFConnect)

The sector with the highest yield is MLPs (10.28%), followed by U.S. real estate (8.92%), multi-sector income (8.88%), global growth & income (8.88%), and global equity dividend (8.68%). Discounts and z-scores for the sectors are included for comparison. The average sector yield is 6.70% (up from 6.68% last week).

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Stanford Chemist profile picture

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Comments (25)

Concerning SZC and the ongoing rights offering it seems to me that there is an opportunity there.
The decline in price looks a bit excessive.
I do not know details about the cost of the rights offering but according to the formula I calculate that the total hit in NAV should be around 5%-6%. I do not think that the discount will ever reach 22%.
The holdings of SZC are quite solid so it may be a good buy at this level.
Scooter-Pop profile picture
Anyone able to comment on Kayne’s Acquisition Entity, KAACU?

Seems like it has failed to make a worthy acquisition to date.
I believe that KYN will become a monthly payer after its merger. If any MLP funds need to reduce their expenses, its certainly the Kayne Anderson family. Last time I checked, the expense ratio on KYN was in the 4%-5% range. they used to be able to get away with this when they were one of the first and only players in this space.
Stanford Chemist profile picture
Agree on both counts, RNArizona!
Think. Focus. Health. Wealth profile picture
Simply a wonderful time to add some FMO & more CEN if/when a cut occurs....if you are in it for Income, add more shares and drip for the long haul
Stanford Chemist profile picture
Thanks learning for your comment
sts66 profile picture
Bbbbuttttt....as I mentioned, KMF cut 3 times in recent years......if FMO and CEN follow suit, you'll lose way more in cap gains than distributions you collect along the way, and end up way underwater on those DRIP shares.
Think. Focus. Health. Wealth profile picture
"Along the way" time frame for you and for me probably differ...merely a paper loss only and only for short term at that, since I never plan to sell.

Drip and buy lower cost shares all the while growing share count to tap the income flow 3-5+ yrs from now...if FMO & CEN go to zero (close up shop) with an initial 2% investment in each, my total portfolio will still carry on with other diversified income producing streams.

Just like any business investment(s), things will ebb and flow and there will be some failures, yet the overall business still remains open and focused on annual revenue/income flow in excess of expenses.
sts66 profile picture
Wow, so much stuff I don't know whether I'll catch all of them:

1. KMF/KYE merger - I own KMF, and have received nothing in the mail about this yet (not even an email about the proposal - WTF?), so this is big news to me. I went to the KMF website and downloaded the FAQ about the merger, and it contained some extra info:

a) Exchange ratio will be based on respective NAVs - at the time of the FAQ release it was 0.74 shrs of KMF for each shr of KYE.

b) If the merger is approved, KMF will go to a monthly divvy payer, and eventually distribution may go up a tad - from the FAQ:

"It is anticipated that the combined fund would have a lower expense level with estimated aggregate
cost savings of approximately $1.1 million annually, the majority of which is expected to be
attributable to reduced operating costs. Because the Merger is expected to be completed during the
third quarter of fiscal 2018, and because there are expenses associated with the Merger, the full
impact of these cost savings will not be entirely recognized this year. We expect the combined fund
to realize the full benefit of these cost savings during fiscal 2019. The funds incur operating
expenses that are fixed (e.g., board fees, printing fees, legal and auditing services) and operating
expenses that are variable (e.g., administrative and custodial services that are based on assets
under management). Many of these fixed expenses are duplicative between the funds and can be
eliminated as a result of the Merger. There will also be an opportunity to reduce variable expenses
by taking advantage of greater economies of scale. As a result of these cost savings, it is expected
that the combined fund will enjoy lower operating costs as a percentage of total assets.

The Merger is expected to be accretive to KMF’s net distributable income (or NDI) per share, in part
due to the anticipated cost savings from the transaction. In connection with the Merger, KMF
announced its intention to pay a distribution at its current annualized rate of $1.20 per share over the
next 12 months."

2. HFRO and NHF news is also huge - wasn't aware of HFRO before, and agree with your (and mozarts) opinion that the recent jump in MP was due to investors expecting a massive special divvy - will be interesting to see what management does with the windfalls when they get them, because as you mention management would be better off increasing AUM and therefore fees. HFRO is rather boring otherwise - 1 yr history of divs is all over the place, and yield is only around 5% - lumpy divs are a turn off for me, and they didn't even pay one last Nov.

3. You missed a big unexpected surprise div cutter (forgive you, can't expect perfection, LOL) - FMO, a Midstream MLP CEF, just cut it's div a whopping -25% - that's a shocker - MLP space has been pretty stable as far as distributions go, most were level or increased over the last 6-8 months, and FMO had slowly increased it's distribution from $0.335 in Aug '09 to $0.4208 in Dec '17 before announcing the new $0.3231 dist. on 3/2/18. Hmm....maybe not such a shock after all......just checked KMF's dist. history, and they went from $0.51 in Nov '15 to $0.35 to $0.30 between 3/16 and 6/17, but also had that massive special divvy of $2.31 in July '15.

Based on the MLP CEF cuts, I think I'm going to take CEN off my watchlist too, if others are cutting they're not immune to the same problems.
Triple F Fred profile picture
Hi STS66,

I own KYE because I particularly liked the healthy presence of the marine energy shippers in their stabel of holdings. I am still assessing the overall impact of the merger before I make a hard decision. I don't like the % dilution in the shipping sector that the merger will entail. Will require some mor thought. I may just increase my holdings in JMLP for the same reason I like KYE... More thought for the weekend. Thanks for your report on what you located on the website. I already knew about the proposed merger but had put off studying it till the weekend!


Thanks! Fred
Stanford Chemist profile picture
Thank you for the detailed and excellent comment sts! Thanks for sharing your valuable thoughts and insight.

The roundup is from last week which is why I haven't updated FMO yet (which announced on 3/3) - but thank you for the tip anyway!
Edit or perish profile picture
"the managers do not have to worry about forced resumptions possibly leading to depressed asset prices in the underlying portfolio. "

Maybe "redemptions " rather than "resumptions ??"
Stanford Chemist profile picture
Thank EoP - you are correct, that meant to say "redemptions". I'll submit an edit!
NV_GARY profile picture
Lots about HFRO- but no explanation of the suit - other $$.

And: "The judgment will continue to accrue at 9% simple interest per year until this matter is finally resolved."
I'd like know where they are getting that 9% !
Stanford Chemist profile picture
Thanks Gary. I'm thinking that the 9% is the interest paid by the defendant, Credit Suisse?
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