Weekly Closed-End Fund Roundup: DSU Tender Results, Some CEF High Fliers Lose Air

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Includes: ACV, AIF, ASG, CGO, CIF, CMU, DDF, DEX, DSU, ECC, EDF, EDI, EFF, EFR, EFT, EIM, EMD, EVF, FAX, FEN, GBAB, GGM, GLO, GLQ, GLV, GRX, HIE, HQH, HQL, IAE, IGA, IGD, IHD, IID, JEMD, MCR, MFV, MGF, MIN, MMT, MSD, NCV, NCZ, OIA, OXLC, PCK, PGP, PHK, PMX, PNF, PNI, PPT, PYN, PZC, RCS, TEI, USA
by: Stanford Chemist
Summary

8 out of 31 CEF sectors positive on price and 9 out of 31 sectors positive on NAV this week.

DSU tender results are in, with 12.10% pro-ration.

Some CEF high fliers lose air, but don't get caught when DDF's valuation reverts.

This article was first released to CEF/ETF Income Laboratory subscribers 2 weeks ago, so data may be out of date. Please check latest data before making investment decisions.

The Weekly Closed-End Fund 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 is taken from the close of Friday, April 19, 2019.

Weekly performance roundup

8 out of 31 sectors were positive on price (down from 23 last week) and the average price return was -0.60% (down from +0.28% last week). The leading gainers were other Asia equity (+0.84%), other non-U.S. equity (+0.81%) and emerging market equity (+0.71%). Health/biotech (-3.21%), MLPs (-2.79%) and real estate (-2.35%) lagged.

(Source: Stanford Chemist, CEFConnect)

9 out of 31 sectors were positive on NAV (down from 17 last week), while the average NAV return was -0.45% (down from +0.05% last week). The top sector by NAV was Latin American equity (+1.16%) followed by Asia equity (+0.54%), while health/biotech (-4.76%) was the worst performing sector by NAV.

(Source: Stanford Chemist, CEFConnect)

The sector with the highest premium is multisector income (+0.60%), while the sector with the highest discount is Latin American equity (-13.09%). The average sector discount is -6.48% (down from -6.33% last week).

(Source: Stanford Chemist, CEFConnect)

Health/biotech showed the largest premium/discount increase (+1.48%), while other emerging markets showed the largest premium/discount decline (-2.17%). The average change in premium/discount was -0.15% (up from -0.22% last week).

(Source: Stanford Chemist, CEFConnect)

The sector with the highest average 1-year z-score is health/biotech (+1.73) while the sector with the lowest z-score is energy/resources (-0.43). The average z-score is +0.45 (down from +0.52 last week).

(Source: Stanford Chemist, CEFConnect)

The sectors with the highest yields are MLPs (11.23%), global equity dividend (9.71%), emerging market income (9.38%), global growth & income (9.19%) and covered call (8.43%). Discounts and z-scores for the sectors are included for comparison. The average sector yield is 7.01% (up from 6.93% 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

(EDF)

-7.61%

16.71%

24.57%

1.4

-5.76%

0.00%

(EDI)

-7.31%

14.66%

8.60%

0.8

-6.22%

0.09%

(OIA)

-6.45%

5.26%

0.40%

-0.6

-6.03%

0.00%

(ECC)

-5.76%

14.12%

21.00%

1.1

-4.55%

0.00%

(PCK)

-5.02%

4.77%

2.68%

0.9

-4.66%

0.00%

(PNF)

-3.99%

5.05%

8.34%

0.4

-3.80%

-0.26%

(GGM)

-3.80%

10.62%

3.43%

0.3

-3.40%

0.15%

(CMU)

-3.35%

5.22%

-3.77%

1.1

-3.77%

-0.42%

(PPT)

-2.58%

8.24%

-5.90%

0.3

-2.67%

0.00%

(GBAB)

-2.48%

6.63%

2.43%

1.7

-2.27%

0.09%

(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

(DDF)

6.27%

8.01%

22.38%

1.9

2.81%

-2.46%

(CGO)

4.46%

9.27%

7.02%

0.3

4.44%

0.08%

(HIE)

4.13%

11.83%

5.28%

1.6

3.25%

-0.80%

(FEN)

3.40%

10.11%

2.91%

1.7

1.73%

-1.63%

(GRX)

3.22%

5.08%

-11.15%

4.5

0.10%

-3.53%

(OXLC)

3.18%

15.13%

41.67%

2.1

2.29%

0.00%

(ACV)

3.10%

8.61%

0.95%

0.5

2.42%

-0.73%

(JEMD)

2.57%

5.06%

-0.45%

1.6

2.77%

0.11%

(GLQ)

2.37%

10.52%

-4.56%

0.2

0.12%

-2.37%

(MFV)

2.35%

9.64%

2.17%

0.8

1.62%

-0.72%

(Source: Stanford Chemist, CEFConnect)

Recent corporate actions

These are from the last month and are quoted from Closed-End Fund Center, Morningstar, or CEFInsight (email alerts); any new news in the past week has a bolded date:

April 16, 2019 | BlackRock Debt Strategies Fund, Inc. Announces Final Results of Tender Offer. BlackRock Debt Strategies Fund, Inc. (DSU)announced today the final results of the Fund’s tender offer (the “Tender Offer”) for up to 5% of its outstanding shares of common stock (the “Shares”). The Tender Offer, which expired at 5:00 p.m. Eastern time on April 15, 2019, was oversubscribed. Therefore, in accordance with the terms and conditions of the Tender Offer, the Fund will purchase Shares from all tendering stockholders on a pro rata basis, after disregarding fractions, based on the number of Shares properly tendered (“Pro-Ration Factor”). The final results of the Tender Offer are provided in the table below.

Number of SharesTendered

Number ofTendered Sharesto be Purchased

Pro-Ration Factor

Purchase Price*

Number ofOutstandingShares afterTender Offer

21,792,955 2,636,959 12.10137% $11.9854 50,102,225

* Equal to 98% of the Fund's net asset value per Share as of April 16, 2019 (the business day immediately following the expiration date of the Tender Offer). The Fund will purchase the Shares it has accepted for payment as promptly as practicable.

Upcoming corporate actions

These are from the last month and are quoted from Closed-End Fund Center, Morningstar, or CEFInsight (email alerts); any new news in the past week has a bolded date:

April 11, 2019 | NexPoint Strategic Opportunities Fund Announces Rights Offering. NexPoint Strategic Opportunities Fund (NYSE: NHF) (the "Fund"), today announced the commencement of a non-transferable rights offering to purchase additional shares of common stock of the Fund (the "Offering").

The Fund is issuing non-transferable rights ("Rights") to its common shareholders of record as of April 29, 2019 (the "Record Date" and such shareholders, "Record Date Shareholders"). Record Date Shareholders will receive one Right for each common share held on the Record Date. The Rights will entitle the Record Date Shareholders to purchase one new share of common stock for every three Rights held (1 for 3). The Rights will be mailed to Record Date Shareholders approximately two business days after the Record Date.

Record Date Shareholders who fully exercise their Rights will be entitled to subscribe for additional common shares of the Fund that remain unsubscribed as a result of any unexercised Rights by Record Date Shareholders. In addition, the Fund in its sole discretion may elect to issue additional common shares in an amount up to 25% of the common shares issued in the primary subscription.

The subscription price per common share will be determined based upon a formula equal to the lesser of (1) 95% of the reported net asset value on May 22, 2019 (the "Expiration Date"), or (2) 95% of the average of the last reported sales price of the Fund's common shares on the New York Stock Exchange ("NYSE") on the Expiration Date and on each of the four trading days preceding the Expiration Date.

Important Upcoming Dates:

Record Date:

April 29, 2019

Subscription Period:

April 30, 2019 to May 22, 2019

Expiration Date

May 22, 2019

March 27, 2019 | Eaton Vance Municipal Bond Fund Announces Firm And Conditional Tender Offers. Eaton Vance Municipal Bond Fund (EIM) (the "Fund") today announced that its Board of Trustees (the "Board") has authorized a cash tender offer for up to 10% of its outstanding common shares at a price per share equal to 98% of the Fund's net asset value ("NAV") per share as of the close of regular trading on the New York Stock Exchange (NYSE) on the date the tender offer expires (the "Firm Tender Offer"). The Firm Tender Offer is expected to begin on or about April 18, 2019 and expires at 5:00 PM Eastern Time on or about May 17, 2019, unless extended. The pricing date is also expected to be May 17, 2019, unless the Firm Tender Offer is extended.

The Board also authorized the Fund to conduct two conditional cash tender offers to follow the Firm Tender Offer, provided certain conditions are met. Specifically, as soon as reasonably practicable after the Firm Tender Offer closes, the Fund will announce via press release the commencement of a 120-day period. If, during such period, the Fund's common shares trade at an average discount to NAV of more than 6% ("First Trigger Event"), the Fund will conduct an additional tender offer (the "Initial Conditional Tender Offer") beginning within 30 days of the end of the month in which the First Trigger Event occurs. The Initial Conditional Tender Offer will be for up to 5% of the Fund's then-outstanding common shares at 98% of NAV per share as of the close of regular trading on the NYSE on the date the tender offer expires.

If the Initial Conditional Tender Offer occurs, the Fund will announce via press release the commencement of a second 120-day period. If, during such period, the Fund's common shares trade at an average discount to NAV of more than 6% ("Second Trigger Event"), the Fund will conduct an additional tender offer (the "Second Conditional Tender Offer" and, collectively with the Firm Tender Offer and the Initial Conditional Tender Offer, the "Tender Offers") beginning within 30 days of the end of the month in which the Second Trigger Event occurs. The Second Conditional Tender Offer will be for up to 5% of the Fund's then-outstanding common shares at 98% of NAV per share as of the close of regular trading on the NYSE on the date the tender offer expires. The Second Conditional Tender Offer will not commence and the Fund will not announce a second 120-day period unless the Initial Conditional Tender Offer occurs.

Recent activist or other CEF news

These are from the last month and are quoted from Closed-End Fund Center, Morningstar, or CEFInsight (email alerts); any new news in the past week has a bolded date:

March 28, 2019 | Board Approves Changes to Sub-Adviser, Fees, and Strategies for Voya Emerging Markets High Dividend Equity Fund. The Board of Trustees (“the Board”) of Voya Emerging Markets High Dividend Equity Fund (the “Fund”) (IHD) has approved changes to the Fund’s sub-advisory relationship. In connection with these approvals, the investment strategies and portfolio managers of the Fund will change and the Fund’s investment advisory fee rate and expense limit arrangements will be reduced as described below. Each of the foregoing changes will be effective on or about May 6, 2019.

  • The Fund’s Board has appointed Voya Investment Management Co. LLC (“Voya IM” or “Sub-Adviser”) to serve as the sole sub‐adviser to the Fund beginning on May 6, 2019, following the termination of the current sub‐advisory agreement between Voya Investments, LLC (the “Adviser”) and NNIP Advisors B.V.
  • The Fund will maintain its current investment objective of total return through a combination of current income, capital gains, and capital appreciation. The Fund will continue to pursue an option overlay strategy in the same manner as the current strategy. Upon the implementation of the changes, Voya IM will employ a dividend focused quantitative strategy in selecting equity investments for the Fund. T he Sub-Adviser uses an internally developed quantitative computer model to create a target universe of global securities with above average dividend yields compared to the Index, which the Sub-Adviser believes exhibit stable dividend yields within each geographic region and industry sector.
  • Management fee reduced from 1.25% to 1.15%.

Similar announcements were made for Voya Asia Pacific High Dividend Equity Income Fund (IAE), Voya Global Advantage and Premium Opportunity Fund (IGA), Voya Global Equity Dividend and Premium Opportunity Fund (IGD), andVoya International High Dividend Equity Income Fund (IID), except that IGA did not announce a fee cut.

March 21, 2019 | Tekla Life Sciences Investors Announce Renewal of Share Repurchase Program. Tekla Life Sciences Investors (HQL) (the “Fund”) announced today that its Board of Trustees authorized a renewal of its share repurchase program. The current share repurchase program allows the Fund to purchase in the open market up to 12% of its outstanding common shares for a one-year period ending July 14, 2019. The renewal will allow the Fund to purchase in the open market up to 12% of its outstanding common shares for a one year-period ending July 14, 2020. The Board authorized the share repurchase program as a result of its periodic review of the options available to enhance shareholder value and potentially reduce the discount between the market price of the Fund’s shares and the net asset value per share. The share repurchase program is intended to increase the Fund’s net asset value per share and could also have the benefit of providing additional liquidity in the trading of shares.

March 21, 2019 | Tekla Healthcare Investors Announce Renewal of Share Repurchase Program. Tekla Healthcare Investors (HQH) (the “Fund”) announced today that its Board of Trustees authorized a renewal of its share repurchase program. The current share repurchase program allows the Fund to purchase in the open market up to 12% of its outstanding common shares for a one-year period ending July 14, 2019. The renewal will allow the Fund to purchase in the open market up to 12% of its outstanding common shares for a one-year period ending July 14, 2020. The Board authorized the share repurchase program as a result of its periodic review of the options available to enhance shareholder value and potentially reduce the discount between the market price of the Fund’s shares and the net asset value per share. The share repurchase program is intended to increase the Fund’s net asset value per share and could also have the benefit of providing additional liquidity in the trading of shares.

Distribution changes announced this month

These are sorted in ascending order of distribution change percentage. Funds with distribution changes announced this month are included. Any distribution declarations made this week are in bold. I've also added monthly/quarterly information as well as yield, coverage (after the boost/cut), discount and 1-year z-score information. I've separated the funds into two sub-categories, cutters and boosters.

Cutters

Name

Ticker

Change

Previous

Current

Yield

Discount

z-score

Coverage

Announced

Ex-date

PIMCO High Income Fund

(PHK)

-24.0%

0.0807

0.06133

9.51%

26.26%

-1

84%

4/1/2019

4/10/2019

PIMCO Global StocksPLUS & Inc

(PGP)

-23.0%

0.122

0.09394

9.16%

26.28%

-1.3

101%

4/1/2019

4/10/2019

AGIC Convertible & Income II

(NCZ)

-21.7%

0.0575

0.045

10.33%

3.36%

-1

86%

4/1/2019

4/10/2019

Aberdeen Asia-Pacific Income

(FAX)

-21.4%

0.035

0.0275

8.05%

-14.76%

-1

67%

4/9/2019

4/18/2019

PIMCO NY Municipal Income II

(PNI)

-21.0%

0.05069

0.04005

4.35%

0.45%

-0.7

296%

4/1/2019

4/10/2019

AGIC Convertible & Income

(NCV)

-19.2%

0.065

0.0525

10.57%

5.67%

-1.2

99%

4/1/2019

4/10/2019

Templeton Global Income

(NCV)

-18.0%

0.041

0.0336

6.58%

-12.12%

0.5

95%

4/1/2019

4/12/2019

PIMCO NY Municipal Income III

(PYN)

-16.0%

0.04225

0.03549

4.46%

7.07%

0.3

209%

4/1/2019

4/10/2019

PIMCO Strategic Income Fund

(RCS)

-15.0%

0.072

0.0612

7.57%

37.20%

0.1

97%

4/1/2019

4/10/2019

PIMCO Municipal Income III

(PMX)

-9.0%

0.05575

0.05073

4.96%

13.61%

1.5

106%

4/1/2019

4/10/2019

PIMCO NY Municipal Income

(PNF)

-7.0%

0.057

0.05301

5.05%

8.34%

0.4

89%

4/1/2019

4/10/2019

PIMCO CA Municipal Income III

(PZC)

-7.0%

0.045

0.04185

4.89%

5.99%

-0.4

86%

4/1/2019

4/10/2019

Apollo Tactical Income Fund In

(AIF)

-2.8%

0.107

0.104

8.35%

-11.12%

0.2

105%

4/5/2019

4/15/2019

Templeton Emerging Mkts Income

(TEI)

-0.3%

0.0703

0.0701

8.35%

-8.94%

0.5

96%

4/1/2019

4/12/2019

(Source: Stanford Chemist, CEFConnect)

Boosters

Name

Ticker

Change

Previous

Current

Yield

Discount

z-score

Coverage

Announced

Ex-date

MFS Intermediate Income

(MIN)

0.1%

0.02856

0.02859

9.30%

-8.21%

-0.5

30%

4/1/2019

4/16/2019

MFS Government Markets Income

(MGF)

0.1%

0.02841

0.02845

7.78%

-6.40%

-0.5

36%

4/1/2019

4/16/2019

Clough Global Div and Inc Fund

(GLV)

0.2%

0.1032

0.1034

11.05%

-9.22%

-0.1

19%

4/12/2019

4/18/2019

MFS Intermediate High Income

(CIF)

0.5%

0.01997

0.02006

9.12%

2.72%

1.4

60%

4/1/2019

4/16/2019

MFS Multi-Market Income

(MMT)

0.6%

0.04099

0.04122

8.77%

-9.62%

0.5

51%

4/1/2019

4/16/2019

MFS Charter Income

(MCR)

0.6%

0.05784

0.05817

8.93%

-11.04%

-0.1

50%

4/1/2019

4/16/2019

MFS Special Value Trust

(MFV)

0.6%

0.04513

0.04541

9.64%

2.17%

0.8

30%

4/1/2019

4/16/2019

EV Floating-Rate Inc Plus Fund

(EFF)

1.2%

0.083

0.084

6.19%

-13.30%

-0.7

95%

4/1/2019

4/22/2019

Clough Global Equity

(GLQ)

1.2%

0.1123

0.1137

10.52%

-4.56%

0.2

0%

4/12/2019

4/18/2019

Clough Global Opportunities

(GLO)

1.2%

0.0882

0.0893

11.15%

-9.97%

-0.4

2%

4/12/2019

4/18/2019

Delaware Enhanced Gbl Div&Inc

(DEX)

2.0%

0.0886

0.0904

11.04%

-11.44%

-0.7

49%

4/2/2019

4/17/2019

Delaware Inv Div & Inc

(DDF)

2.1%

0.0886

0.0905

8.01%

22.38%

1.9

23%

4/2/2019

4/17/2019

EV Senior Floating Rate

(EFR)

2.7%

0.075

0.077

6.43%

-11.14%

-0.6

100%

4/1/2019

4/22/2019

EV Floating Rate Income

(EFT)

2.7%

0.074

0.076

6.16%

-11.74%

-0.8

88%

4/1/2019

4/22/2019

EV Senior Income Trust

(EVF)

3.0%

0.033

0.034

6.49%

-11.90%

0

115%

4/1/2019

4/10/2019

Liberty All-Star Equity

(USA)

13.3%

0.15

0.17

10.68%

-5.07%

0.5

2%

4/15/2019

4/25/2019

Liberty All-Star Growth

(ASG)

20.0%

0.1

0.12

8.36%

-3.69%

-0.4

-2%

4/15/2019

4/25/2019

(Source: Stanford Chemist, CEFConnect)

CEF analysis from around Seeking Alpha...

A1 Investments presents MYI: Patience Is A Virtue (Apr. 18)

ADS Analytics presents GUT: Another High Premium Mole Set Up For A Whack? (Apr. 15), Living Dangerously: A Taxonomy Of 'Bad' CEFs (Apr. 16)

Alpha Gen Capital presents YH Power Rankings Report - April 2019 (Apr. 15), A Look Under The Hood Of PCI And PDI (Apr. 17)

Arbitrage Trader presents Closed-End Funds: March Madness In April (Apr. 16), Weekly Review: High-Yield CEFs - DHF Has Solid Past Performance And Juicy Current Yield (Apr. 17), Weekly Review: Municipal Bond CEFs - A Slight Decrease In The Price Of The Benchmark (Apr. 17), Weekly Review Of Preferred Stock CEFs: The Z-Scores In The Sector Continue Moving Higher (Apr. 18)

Dividend Seeker presentsPFN: Still One Of The Better Values (Apr. 17)

George Spritzer presents Why Do PIMCO Muni CEFs Consistently Trade At Premiums Over NAV (Apr. 15)

MTS Insights presents BlackRock Science And Technology Trust Risky With Little Upside (Apr. 16)

Power Hedge presents THW: Bet On Healthcare With This 10.88%-Yielding CEF (Apr. 15), Tekla Healthcare Opportunities Fund: Take Advantage Of Healthcare Trends With This CEF (Apr. 15), RQI: A Top Real Estate Fund For Income Investors (Apr. 17), Tortoise MLP Fund: A Good Source Of Income, But Not That Well-Diversified (Apr. 19)

Samuel Smith presents 3 Reasons Why RIF's 21% Discount To NAV Is Not Worth Buying (Apr. 16)

*Stanford Chemist presentsWeekly Closed-End Fund Roundup: March 29, 2019 (Apr. 14), The Chemist's Quality Closed-End Fund Report: March 2019 (Apr. 15), Quick Notes On MAV And High-Yield Munis (Apr. 16), EXD's New Strategy Provides A Catalyst For Discount Contraction (Apr. 17), Changes To Voya Global/International Closed-End Funds Coming Soon (Apr. 19)

*To subscribers: these link to the public version of the article, which you will already have seen in the members section.

Fear & Greed Trader presents S&P 500 Weekly Update: While The Uptrend Pauses, Earnings Season Is Off To A Good Start (Apr. 20)

Jeff Miller presents Weighing The Week Ahead: Why Is The Market So Quiet? (Apr. 21)

Lance Roberts presents The Fear Of Missing Out (FOMO) (Apr. 21)

Commentary and actionable takeaway

The main news this week was the results of BlackRock Debt Strategies Fund's (DSU) tender offer, which expired last week. We didn't get the run-up in valuation that I had hoped for as the fund approached expiration, so we held our DSU position through the expiry date in the Tactical Income-100 portfolio. We are happy holding onto DSU as a standard loan/high-yield fund for the time being.

On the flip side, we were right in predicting that the share price would not crash after expiry, due to the fund's already quite wide discount. The fund's discount widened by only around 1%, from -11.22% to -12.26%, upon expiration of the offer.

Chart

Data by YCharts

The offer was for 5% of outstanding shares at 98% of NAV. With an announced pro-ration factor of 12.10%, this means that only around 41% of DSU shareholders actually submitted their shares for tender. Hence, one of our members was right on the money with their prediction for 10 to 15% of shares accepted (as well as the lack of share price drop post tender):

Mar 31, 2019 8:32 AM

I continue to like DSU here in advance of the tender. The lack of odd lot is actually a positive for those willing to take a sizable stake. The tender rate for those with a thousand shares or less likely to be very low. Why bother to tender for the possibility of 50 shares being accepted and maybe paying a fee to do it. I suspect that upward of 10 or 15% of shares will be accepted, a decent trade if there is not significant drop post tender. (Why should there be since we really haven't had a pre tender run up)

We received a very nice +12.44% total return on the tendered portion of our DSU shares (bought at $10.72 on March 29, 2019 (public link), tendered at $11.9854 with $0.0685 distribution), consisting of +11.80% in capital gains and +0.64% in distributions, for an IRR of 157%. Meanwhile, the untendered portion of the shares are trading only 1 cent below our original purchase share price, meaning that we delivered about 1% alpha across our entire position in only 1 month. Overall, a very simple winning trade. Traders who are not interested in holding on DSU for the long-term can now exit their position, however, as I stated above we are content with holding onto DSU with its attractive -12.49% discount until better opportunities open up.

Liberty-All Star Equity Equity Fund (USA) and Liberty-All Star Equity Growth Fund (ASG) boost distributions by +13.3% and +20.0% respectively this week, but that is simply due to their adherence to their managed distribution policy to pay out a set percentage of their NAV each quarter.

Some CEF high-fliers lose a bit of air this month. The top two premium/discount losers were Stone Harbor Emerging Markets Income (EDF) or Stone Harbor Emerging Markets Total Income Fund (EDI), which lost -7.61% and -7.31% respectively.

Chart

Data by YCharts

We last wrote about EDF and EDI in "Sell Stone Harbor Emerging Markets Income Funds Before Dividend Declaration" (January 7, 2019). While we were a bit early in calling for a distribution cut (the announcement on 1/23 maintained the distributions for both funds at the same level), the situation for both funds has actually gotten worse and not better. The latest earnings numbers (11/30/2018) show that EDF's coverage has fallen from 55% to 51%, while for EDI it has dropped slightly from 63% to 62%. According to their latest Section 19a notices, fiscal-year-to-date (from December 1, 2018) earnings coverage for EDF and EDI are 63% and 52% respectively, with the remaining coming from ROC. Moreover, NAVs for both funds are trending downwards again after the January rally.

Chart

Data by YCharts

Hence, NAV erosion appears to be continuing to take place and I would suggest getting out of both funds sooner rather than later. Obviously, selling at last week's record (and inexplicable) premiums of over +30% for EDF and over 15% of EDI could have been a great timing point, but I think their current valuations of 24.57% and 8.60% still make them overvalued.

We previously recommended Nuveen Emerging Markets Debt 2022 Target Term Fund (JEMD) as a replacement, and not only has JEMD now caught up and eclipsed EDF and EDI's share price total returns since our last article (despite the Stone Harbor Funds' insane premiums), but it has preserved its NAV much better in doing so.

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Data by YCharts

However, JEMD is currently not too attractive at a -0.45% discount, since the alpha potential from the 2022 liquidation has basically now vanished. Instead, consider Templeton Emerging Markets Income Fund (TEI) (-8.94% discount, 8.35% yield), Morgan Stanley Emerging Markets Debt Fund (MSD) (-12.77% discount, 5.76% yield) and Western Asset Emerging Markets Debt Fund (EMD) (-12.08%), 8.73% yield) as replacements in the emerging markets income space that are still relatively undervalued.

Notice how all of these funds have maintained their NAVs much better over the past year than EDF and EDI, and ultimately, it is the rate of NAV decay that drives distribution cuts. Remember CEF investors, don't just look at the yield!

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Data by YCharts

On the topic of not chasing yield, Delaware Investments Dividend And Income Fund (DDF) has reached stratospheric heights with its +22.38% premium after gaining +6.27% in premium last week, which is the highest since 2003. The catalyst for this premium expansion was the inception of a managed distribution policy to pay out 10% of its NAV per year, which basically more than doubled its yield overnight. However, nothing in the portfolio (a hybrid equity/fixed income fund) or management (mixed performance vs. peer group) justifies such a high valuation. If I owned DDF, I would be counting my lucky stars that this golden opportunity to harvest such a juicy premium fell right into my lap. Buyers beware!

(Source: CEFConnect)

Disclosure: I am/we are long the portfolios. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.