The Chemist's Closed-End Fund Report - May 2019: Watch For Bubbles

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Includes: ACP, ACWX, ASA, AVK, BGIO, BIF, BST, BTZ, BWG, CEE, CEN, CET, CGO, CHY, CLM, CRF, CTR, CUBA, DDF, DEX, DNI, DNP, ECC, EDD, EDF, EDI, EFF, EFR, EFT, EMF, EMO, ENX, ETB, ETV, ETW, EXG, FAM, FAX, FEO, FIV, FMO, FPL, FRA, FSD, FT, FTF, FXBY, GAB, GAM, GER, GGN, GHY, GLV, GMZ, GOF, GRX, GUT, HFRO, HGLB, HQL, HTD, IFN, IIF, IRL, IRR, ISD, IVH, JOF, JQC, KYN, LQD, MAV, MXF, NBO, NBW, NCV, NCZ, NDP, NHF, NHS, NID, NIM, NMY, NNC, NQP, NTX, NUM, NXP, OCCI, OIA, OPP, OXLC, PAI, PCF, PCN, PCQ, PGP, PHK, PML, PTY, RCS, RIF, RQI, SMM, SOR, SPE, SPY, SRV, TLT, UTF, VGI, WIA, YYY, ZF, ZTR
by: Stanford Chemist
Summary

CEFs rise with the market, and average discounts (-5.23%) are narrowest since January 2018.

Average 1-year z-scores (+0.69) are the highest since July 2017.

Message remains the same: watch for overvaluation and don't hesitate to harvest capital gains.

This article was first released to CEF/ETF Income Laboratory subscribers 1 month ago, so data may be out of date. Please check latest data before making investment decisions.

Quantitative screens help to rapidly narrow down attractive candidates from the database of 500-plus closed-end funds [CEFs] for further due diligence and investigation. Previous editions of the Report can be searched using the keyword "cefrep".

A database of CEFs was obtained from CEFConnect. All yields are quoted as the yield on price. All z-scores refer to the 1-year z-score, which I consider to be the most useful time duration for profiting from premium/discount reversion. The 1-year z-score is calculated as the difference between the current premium/discount and the 1-year average premium/discount, all divided by the standard deviation of said premium/discount. Positive z-scores indicate that the CEF's current premium/discount is higher than its historical average, while negative z-scores indicate that the current premium/discount is lower than the historical average. Incorporating the standard deviation into the z-score calculation enables comparison between CEFs that may have different magnitudes of absolute premia and discounts.

In the tables, "distance" refers to the distance between the current premium/discount of the fund and its 1-year historical premium/discount. "Coverage" refers to the ratio between a fund's earnings and its distribution, with coverage ratios greater than 100% indicating that the fund is earning more than it pays out in distributions.

The coverage ratio is calculated by dividing the earnings/share number provided by CEFConnect on the "distributions" tab by the distribution/share. CEFdata also provides earning coverage numbers as well.

Key to table headings:

P/D = premium/discount

Z = 1-year z-score

Dis = distance

Lev = leverage

BE = baseline expense

Cov = coverage

Data were taken from the close of May 3, 2019.

1. Top 10 largest premia and top 10 widest discounts

Top 10 largest premia equity:

Ticker Fund Category P/D Y Z Cov 1Y NAV Dis Lev BE
(GUT) Gabelli Utility Trust U.S. Utilities 40.57% 8.66% 1.7 3% 12.90% 15.12% 29% 1.77%
(DDF) Delaware Inv Div&Inc U.S. Growth & Income 22.84% 7.95% 1.8 23% 8.79% 13.48% 32% 1.17%
(DNP) DNP Select Income U.S. Growth & Income 16.75% 6.73% -0.6 24% 19.81% -1.39% 28% 1.03%
(GOF) Guggenheim Strategic Opp Fund U.S. Growth & Income 11.74% 10.88% 0.4 45% 5.74% 1.83% 0% 1.28%
(NDP) Tortoise Energy Independence F MLPs 11.74% 21.14% 1.2 0% -27.43% 6.69% 25% 1.81%
(CGO) Calamos Global Total Return Global Growth & Income 9.57% 8.96% 0.8 15% 3.90% 4.17% 36% 1.67%
(CRF) Cornerstone Total Return U.S. General Equity 9.48% 19.64% -0.4 6% 12.86% -1.97% 0% 1.49%
(CLM) Cornerstone Strategic Value U.S. General Equity 7.79% 20.00% -0.3 5% 13.01% -1.64% 0% 1.42%
(ETB) EV Tax-Managed Buy-Write Inc Covered Call 6.58% 8.08% 1.9 12% 6.21% 4.87% 0% 1.14%
(ETV) EV Tax-Managed Buy-Write Opps Covered Call 6.38% 8.66% 1.3 6% 8.92% 2.54% 0% 1.14%

Top 10 widest discounts equity:

Ticker Fund Category P/D Y Z Cov 1Y NAV Dis Lev BE
(OTCPK:FXBY) Foxby Corp. U.S. General Equity -32.39% 0.47% -0.6 #DIV/0! 9.28% -1.79% 0% 2.09%
(DNI) Dividend and Income Fund U.S. Growth & Income -23.18% 6.72% -0.2 10% 7.40% -0.22% 0% 1.33%
(RIF) RMR Real Estate Income Fund U.S. Real Estate -21.28% 5.28% -0.6 -2% 20.52% -0.71% 35% 1.80%
(CUBA) Herzfeld Caribbean Basin Latin American Equity -18.72% 4.91% 0.4 -2% -1.59% 1.59% 0% 2.66%
(NHF) NexPoint Strategic Opps Fund U.S. Growth & Income -17.13% 11.96% -2.6 32% 1.74% -6.93% 16% 2.14%
(CET) Central Securities Corporation U.S. General Equity -16.88% 2.52% 0.4 8% 16.10% 0.57% 0% 0.67%
(IRL) New Ireland Fund Other Non-U.S. Equity -16.87% 4.68% -0.7 -7% -13.25% -1.07% 0% 1.66%
(BIF) Boulder Growth & Income U.S. General Equity -16.74% 3.63% -0.3 8% 11.74% -0.32% 0% 1.21%
(HGLB) Highland Global Allocation Fun Global Growth & Income -16.71% 8.58% 0.0 0% 0.00% #VALUE! 0% 0.00%
(GAM) General American Investors U.S. General Equity -16.63% 2.27% -0.6 -5% 13.30% -0.33% 17% 1.14%

Top 10 largest premia fixed income:

Ticker Fund Category P/D Y Z Cov 1Y NAV Dis Lev BE
(OXLC) Oxford Lane Capital Corp. Senior Loan 43.25% 14.96% 2.0 114% -10.09% 24.47% 37% 4.35%
(RCS) PIMCO Strategic Income Fund Global Income 37.22% 7.52% 0.1 97% 8.46% 0.47% 68% 0.97%
(PCQ) PIMCO CA Municipal Income California Munis 30.32% 5.12% 1.3 77% 9.16% 6.81% 46% 1.14%
(EDF) Stone Harbor Emerging Mkts FI Emerging Market Income 30.12% 16.18% 2.0 51% -7.67% 13.63% 33% 1.88%
(PHK) PIMCO High Income Fund Multisector Income 27.84% 9.21% -0.9 84% 10.80% -5.84% 24% 0.89%
(PGP) PIMCO Global StocksPLUS & Inc Multisector Income 27.66% 8.95% -1.2 101% 5.53% -11.62% 29% 1.48%
(ECC) Eagle Point Credit Company LLC Senior Loan 25.12% 13.65% 1.6 68% -13.19% 11.72% 34% 3.67%
(PTY) PIMCO Corporate & Income Opps Investment Grade 22.18% 8.74% 0.7 83% 11.18% 3.67% 15% 0.80%
(PML) PIMCO Municipal Income II National Munis 20.15% 5.34% 1.7 90% 10.81% 6.18% 45% 1.10%
(PCN) PIMCO Corporate & Income Strgy Investment Grade 18.40% 7.80% 0.2 94% 8.28% 1.28% 21% 0.92%

Top 10 widest discounts fixed income:

Ticker Fund Category P/D Y Z Cov 1Y NAV Dis Lev BE
(FT) Franklin Universal Trust Multisector Income -15.91% 5.46% -0.2 103% 11.92% -0.21% 24% 0.00%
(BWG) BrandywineGLOBAL-Gl Inc Opps Global Income -15.38% 6.64% -0.3 104% -2.09% -0.39% 37% 1.57%
(FAX) Aberdeen Asia-Pacific Income Global Income -14.17% 8.01% -0.6 67% 1.94% -0.90% 32% 1.16%
(NBW) Neuberger Berman CA Inter Muni California Munis -13.50% 4.11% 1.3 91% 6.10% 1.50% 42% 1.27%
(NNC) Nuveen NC Quality Muni Income North Carolina Munis -13.42% 3.64% 1.3 106% 6.64% 1.43% 38% 1.06%
(WIA) Western Asset Infl-Lnkd Income Government Bonds -13.39% 3.72% -0.7 101% 2.76% -0.88% 32% 0.94%
(NMY) Nuveen MD Quality Muni Income Maryland Munis -13.24% 4.17% 1.5 105% 6.84% 1.50% 39% 1.03%
(NUM) Nuveen MI Quality Muni Income Michigan Munis -13.20% 4.00% 2.1 104% 6.91% 2.16% 39% 1.00%
(NQP) Nuveen PA Quality Muni Income Pennsylvania Munis -12.97% 4.52% 1.6 102% 8.96% 1.67% 40% 0.99%
(GHY) PGIM Global Short Dur Hi High Yield -12.97% 8.43% 1.6 76% 7.29% 1.68% 28% 1.24%

2. Top 10 highest z-scores and top 10 lowest z-scores

(May interest arbitrage investors)

Similar to premia/discounts, CEFs with the lowest z-scores are potential buy candidates, while CEFs with the highest z-scores are potential sell/short candidates. The following data show the 10 CEFs with the highest z-scores and 10 CEFs with the lowest z-scores. Premium/discount, yields, and leverage are shown for comparison.

Top 10 highest z-scores equity:

Ticker Fund Category Z P/D Y Cov 1Y NAV Dis Lev BE
(GRX) Gabelli Health & Wellness U.S. Health/Biotech Equity 3.2 -11.30% 4.93% -5% 14.22% 3.27% 25% 1.55%
(CEE) Central and Eastern Eur Fund #N/A 2.7 -9.78% 3.93% 13% 8.66% 3.37% 2% 1.24%
(UTF) Cohen & Steers Infrastructure U.S. Utilities 2.3 -1.10% 7.36% 0% 15.60% 4.82% 31% 1.39%
(GAB) Gabelli Equity Trust U.S. General Equity 2.3 4.15% 9.55% 0% 8.97% 4.02% 24% 1.36%
(MXF) Mexico Fund Latin American Equity 2.2 -10.13% 6.96% 8% -6.64% 2.92% 0% 1.61%
(FEO) First Trust/Aberdeen Emerging Global Growth & Income 2.2 -8.27% 9.86% 15% -2.12% 4.02% 7% 1.63%
(HTD) JH Tax-Advantaged Dividend Inc U.S. Tax-Advantaged Equity 2.0 -2.44% 6.58% 75% 16.16% 4.04% 33% 1.21%
(EMF) Templeton Emerging Markets #N/A 2.0 -9.39% 5.02% 3% 2.75% 2.74% 0% 1.33%
(ETB) EV Tax-Managed Buy-Write Inc Covered Call 1.9 6.58% 8.08% 12% 6.21% 4.87% 0% 1.14%
(RQI) Cohen & Steers Qty Inc Realty U.S. Real Estate 1.8 -4.88% 7.24% 33% 23.74% 2.76% 26% 1.32%

Top 10 lowest z-scores equity:

Ticker Fund Category Z P/D Y Cov 1Y NAV Dis Lev BE
(NHF) NexPoint Strategic Opps Fund U.S. Growth & Income -2.6 -17.13% 11.96% 32% 1.74% -6.93% 16% 2.14%
(HQL) Tekla Life Sciences Investors U.S. Health/Biotech Equity -1.5 -8.48% 7.95% -4% 6.51% -2.94% 0% 1.19%
(ASA) ASA Gold and Precious Metals U.S. Energy/Resources Equity -1.3 -14.35% 0.21% -73% -8.18% -0.40% 0% 1.31%
(EMO) ClearBridge Energy MLP Opps MLPs -1.3 -12.00% 9.80% 0% 6.93% -3.91% 35% 1.76%
(SOR) Source Capital Inc U.S. General Equity -1.3 -13.73% 2.69% 18% 8.61% -1.51% 0% 0.87%
(ETW) EV Tax-Managed Glb B-W Opps Covered Call -1.2 -3.83% 8.69% 8% 2.98% -5.72% 0% 1.09%
(GMZ) Goldman Sachs MLP Income Opps MLPs -1.2 -8.47% 10.65% 0% 7.01% -3.52% 33% 1.69%
(BST) BlackRock Science and Technolo Global Equity -1.1 3.89% 5.27% -10% 17.78% -2.68% 0% 1.08%
(EXG) EV Tax-Managed Global Fund Covered Call -1.1 -4.11% 8.81% 9% 5.50% -3.86% 0% 1.07%
(JOF) Japan Smaller Capitalization Asia Equity -1.1 -14.43% 1.06% 8% -14.81% -1.36% 0% 1.05%

Top 10 highest z-scores fixed income:

Ticker Fund Category Z P/D Y Cov 1Y NAV Dis Lev BE
(NHS) Neuberger Berman High Yield St High Yield 2.7 -7.01% 6.62% 103% 6.97% 6.84% 34% 1.16%
(PAI) Western Asset Invest Grade Inc Investment Grade 2.6 3.60% 4.52% 94% 5.55% 7.74% 0% 0.75%
(NXP) Nuveen Select TaxFree Income National Munis 2.6 -3.53% 3.63% 102% 6.97% 2.64% 1% 0.27%
(NIM) Nuveen Select Maturities Muni National Munis 2.6 -3.02% 3.10% 99% 5.69% 3.11% 0% 0.57%
(NBO) Neuberger Berman NY Inter Muni New York Munis 2.6 -10.48% 3.81% 970% 5.51% 4.44% 42% 4.23%
(ENX) EV NY Municipal Bond New York Munis 2.6 -8.65% 4.14% 105% 6.11% 3.96% 42% 1.18%
(BGIO) BlackRock 2022 Global Income O Emerging Market Income 2.6 -1.89% 6.41% 95% 4.73% 3.79% 20% 0.94%
(BTZ) BlackRock Credit Alloc Income Investment Grade 2.5 -10.25% 6.29% 96% 6.64% 2.71% 33% 0.92%
(NTX) Nuveen TX Quality Muni Income Texas Munis 2.4 -10.96% 3.91% 101% 6.75% 2.98% 37% 1.03%
(NID) Nuveen Intermediate Dur Muni National Munis 2.4 -5.53% 3.83% 101% 8.37% 2.54% 36% 0.91%

Top 10 lowest z-scores fixed income:

Ticker Fund Category Z P/D Y Cov 1Y NAV Dis Lev BE
(PCF) High Income Securities High Yield -3.4 -7.90% 3.89% 4% 4.70% -4.26% 0% 1.42%
(NCV) AGIC Convertible & Income Multisector Income -1.3 5.12% 10.59% 41% 2.93% -4.61% 28% 1.33%
(HFRO) Highland Floating Rate Opportu Senior Loan -1.2 -7.36% 6.79% 86% 2.43% -6.41% 29% 1.71%
(PGP) PIMCO Global StocksPLUS & Inc Multisector Income -1.2 27.66% 8.95% 101% 5.53% -11.62% 29% 1.48%
(NCZ) AGIC Convertible & Income II Multisector Income -1.0 3.35% 10.31% 57% 2.50% -3.46% 27% 1.37%
(MAV) Pioneer Muni High Inc Adv High Yield Munis -0.9 -7.97% 4.75% 107% 6.20% -1.57% 37% 1.09%
(PHK) PIMCO High Income Fund Multisector Income -0.9 27.84% 9.21% 84% 10.80% -5.84% 24% 0.89%
(CHY) Calamos Convertible & High Multisector Income -0.8 -3.03% 9.11% 61% 10.41% -4.95% 35% 1.28%
(FIV) FIRST TRUST SENIOR FLOATING RA Senior Loan -0.8 -6.26% 4.38% 120% 4.51% -1.32% 30% 1.32%
(OIA) Invesco Muni Income Opps Trust National Munis -0.8 -0.13% 5.23% 98% 7.15% -2.13% 25% 0.77%

3. Top 10 highest yielding CEFs

(May interest buy-and-hold income investors)

Some readers are mostly interested in obtaining income from their CEFs, so the following data presents the top 10 highest yielding CEFs. I've also included the premium/discount and z-score data for reference. Before going out and buying all 10 funds from the list, some words of caution: [i] higher yields generally indicate higher risk, [ii] some of these funds trade at a premium, meaning you will be buying them at a price higher than the intrinsic value of the assets (which is why I've included the premium/discount and z-score data for consideration), and [iii] beware of funds paying out high yields from return of capital in a destructive manner.

Top 10 highest yields equity:

Ticker Fund Category Y P/D Z Cov 1Y NAV Dis Lev BE
(NDP) Tortoise Energy Independence F MLPs 21.14% 11.74% 1.2 0% -27.43% 6.69% 25% 1.81%
(CLM) Cornerstone Strategic Value U.S. General Equity 20.00% 7.79% -0.3 5% 13.01% -1.64% 0% 1.42%
(CRF) Cornerstone Total Return U.S. General Equity 19.64% 9.48% -0.4 6% 12.86% -1.97% 0% 1.49%
(CEN) Center Coast MLP & Infras MLPs 15.07% 3.23% 1.3 0% 9.72% 2.79% 32% 1.89%
(ZF) Virtus Total Return Fund Inc Global Growth & Income 14.47% -7.68% 0.0 6% 9.65% -0.05% 27% 1.61%
(IIF) MS India Investment Asia Equity 14.44% -11.11% 0.4 0% -14.80% 0.61% 0% 1.35%
(GGN) GAMCO Glb Gold Natural Res & Inc U.S. Energy/Resources Equity 13.89% 1.65% 0.9 4% -6.66% 3.72% 13% 1.33%
(IRR) Voya Natural Resource Equity Covered Call 13.32% 4.60% 1.0 3% -14.13% 4.01% 0% 1.21%
(FMO) Fid/Claymore Energy Infrastru MLPs 12.30% -3.67% 0.8 0% 5.44% 1.56% 38% 1.71%
(ZTR) Virtus Global Div & Inc Fund U.S. Growth & Income 12.26% 6.16% 1.1 25% 6.81% 5.05% 28%

1.37%

Ticker Fund Category Y P/D Z Cov 1Y NAV Dis Lev BE
(EDF) Stone Harbor Emerging Mkts FI Emerging Market Income 16.18% 30.12% 2.0 51% -7.67% 13.63% 33% 1.88%
(JQC) Nuveen Credit Strat. Income Senior Loan 15.47% -8.12% 2.2 41% 4.59% 3.92% 36% 1.34%
(OXLC) Oxford Lane Capital Corp Senior Loan 14.96% 43.25% 2.0 114% -10.09% 24.47% 37% 4.35%
(EDI) Stone Harbor Emg Mkts Total In Emerging Market Income 14.33% 12.24% 1.4 62% -7.17% 7.53% 33% 1.97%
(ECC) Eagle Point Credit Company LLC Senior Loan 13.65% 25.12% 1.6 68% -13.19% 11.72% 34% 3.67%
(OPP) RiverNorth/DoubleLine Strategi Multisector Income 12.95% -5.14% 1.1 49% 4.78% 2.10% 27% 1.80%
(VGI) Virtus Global Multi-Sector Inc Multisector Income 11.91% -5.23% 0.7 45% 2.51% 2.46% 28% 1.83%
(ACP) Aberdeen Inc Credit Strategies Senior Loan 11.21% -1.91% 2.0 103% -3.96% 5.42% 31% 2.33%
(OCCI) OFS Credit Company Inc Senior Loan 11.03% -3.48% 0.0 4% 0.00% #VALUE! 0% 0.37%
(FTF) Franklin Limited Duration Inco Limited Duration 10.80% -7.46% 0.1 50% -1.77% 0.23% 26% 1.22%

4. Top 10 best combination of yield and discount

(May interest buy-and-hold income investors)

For possible buy candidates, it is probably a good idea to consider both yield and discount. Buying a CEF with both a high yield and discount not only gives you the opportunity to capitalize from discount contraction, but you also get "free" alpha every time the distribution is paid out. This is because paying out a distribution is effectively the same as liquidating the fund at NAV and returning the capital to the unitholders. I considered several ways to rank CEFs by a composite metric of both yield and discount. The simplest would be yield + discount. However, I disregarded this because yields and discounts may have different ranges of absolute values, and a sum would be biased towards the larger set of values. I finally settled on the multiplicative product, yield x discount. This is because I consider a CEF with 7% yield and 7% discount to be more desirable than a fund with 2% yield and 12% discount, or 12% yield and 2% discount, even though each pair of quantities sum to 14%. Multiplying yield and discount together biases towards funds with both high yield and discount. Since discount is negative and yield is positive, the more negative the "D x Y" metric, the better.

Top 10 best D x Y equity:

Ticker Fund Category P/D Y Z Cov 1Y NAV D x Y Dis Lev BE
(NHF) NexPoint Strategic Opps Fund U.S. Growth & Income -17.13% 11.96% -2.6 32% 1.74% -2.05 -6.93% 16% 2.14%
(IIF) MS India Investment Asia Equity -11.11% 14.44% 0.4 0% -14.80% -1.60 0.61% 0% 1.35%
(DNI) Dividend and Income Fund U.S. Growth & Income -23.18% 6.72% -0.2 10% 7.40% -1.56 -0.22% 0% 1.33%
(HGLB) Highland Global Allocation Fun Global Growth & Income -16.71% 8.58% 0.0 0% 0.00% -1.43 #VALUE! 0% 0.00%
(SRV) Cushing MLP & Infras TR MLPs -13.20% 10.70% -0.7 0% 2.78% -1.41 -1.48% 25% 2.39%
(SPE) Special Opportunities Fund U.S. General Equity -12.05% 10.92% -0.5 -2% 3.19% -1.32 -0.50% 32% 1.91%
(IFN) India Fund Inc Asia Equity -10.69% 11.69% 0.6 0% -4.59% -1.25 1.01% 0% 1.29%
(DEX) Delaware Enhanced Gbl Div&Inc Global Growth & Income -11.21% 10.96% -0.5 49% 0.00% -1.23 -2.07% 32% 1.83%
(GER) Goldman Sachs MLP and Energy R MLPs -10.21% 11.74% -0.9 0% 11.04% -1.20 -2.82% 33% 1.65%
(SMM) Salient Midstream & MLP Fund MLPs -15.26% 7.75% -0.6 0% 4.72% -1.18 -1.36% 25% 2.20%

Ticker Fund Category P/D Y Z Cov 1Y NAV D x Y Dis Lev BE
(JQC) Nuveen Credit Strat. Income Senior Loan -8.12% 15.47% 2.2 41% 4.59% -1.26 3.92% 35.9% 1.34%
(FAX) Aberdeen Asia-Pacific Income Global Income -14.17% 8.01% -0.6 67% 1.94% -1.14 -0.90% 32.4% 1.16%
(GHY) PGIM Global Short Dur Hi High Yield -12.97% 8.43% 1.6 76% 7.29% -1.09 1.68% 28.1% 1.24%
(FSD) First Trust High Inc Long/Shrt High Yield -12.78% 8.55% 0.9 85% 6.64% -1.09 0.95% 21.4% 1.19%
(EDD) MS Emerging Markets Domestic Emerging Market Income -11.53% 9.09% 0.6 36% -6.61% -1.05 1.32% 32.2% 1.72%
(BWG) BrandywineGLOBAL-Gl Inc Opps Global Income -15.38% 6.64% -0.3 104% -2.09% -1.02 -0.39% 36.6% 1.57%
(ISD) PGIM Sht Duration Hi Yld High Yield -12.30% 8.25% 1.6 75% 8.46% -1.01 1.76% 26.4% 1.13%
(IVH) Ivy High Income Opportunities High Yield -11.52% 8.68% 0.0 108% 6.94% -1.00 -0.05% 31.6% 3.06%
(FAM) First Trust/Aberdeen Global Global Income -11.76% 8.48% 1.1 81% -1.65% -1.00 1.68% 30.1% 1.79%
(AVK) Advent Claymore Conv & Income Convertibles -10.37% 9.30% 0.8 35% 9.46% -0.96 1.25% 40.9% 1.27%

5. Top 10 best combination of yield, discount, and z-score

(May interest buy-and-hold income investors + arbitrage investors)

This is my favorite metric because it takes into account all three factors that I always consider when buying or selling CEFs: yield, discount, and z-score. The composite metric simply multiplies the three quantities together. A screen is applied to only include CEFs with a negative 1-year z-score. As both discount and z-score are negative while yield is positive, the more positive the "D x Y x Z" metric, the better.

Top 10 best D x Y x Z equity:

Ticker Fund Category P/D Y Z Cov 1Y NAV D x Y x Z Dis Lev BE
(NHF) NexPoint Strategic Opps Fund U.S. Growth & Income -17.13% 11.96% -2.6 32% 1.74% 5.33 -6.93% 16% 2.14%
(EMO) ClearBridge Energy MLP Opps MLPs -12.00% 9.80% -1.3 0% 6.93% 1.53 -3.91% 35% 1.76%
(CTR) ClearBridge Energy MLP TR Fund MLPs -11.71% 9.26% -1.0 0% 5.62% 1.34 -2.84% 33% 1.68%
(GMZ) Goldman Sachs MLP Income Opps MLPs -8.47% 10.65% -1.2 0% 7.01% 1.08 -3.52% 33% 1.69%
(GER) Goldman Sachs MLP and Energy R MLPs -10.21% 11.74% -0.9 0% 11.04% 1.08 -2.82% 33% 1.65%
(HQL) Tekla Life Sciences Investors U.S. Health/Biotech Equity -8.48% 7.95% -1.5 -4% 6.51% 1.01 -2.94% 0% 1.19%
(SRV) Cushing MLP & Infras TR MLPs -13.20% 10.70% -0.7 0% 2.78% 0.99 -1.48% 25% 2.39%
(KYN) Kayne Anderson MLP MLPs -7.81% 11.28% -1.0 0% 7.84% 0.88 -3.57% 33% 2.48%
(FPL) First Trust New Opps MLP & En MLPs -10.62% 10.32% -0.8 0% 15.13% 0.88 -4.87% 27% 1.60%
(GLV) Clough Global Div and Inc Fund Global Growth & Income -10.64% 11.11% -0.7 19% 2.29% 0.83 -1.48% 42% 1.85%

Top 10 best D x Y x Z fixed income:

Ticker Fund Category P/D Y Z Cov 1Y NAV D x Y x Z Dis Lev BE
(PCF) High Income Securities High Yield -7.90% 3.89% -3.4 4% 4.70% 1.04 -4.26% 0% 1.42%
(FAX) Aberdeen Asia-Pacific Income Global Income -14.17% 8.01% -0.6 67% 1.94% 0.68 -0.90% 32% 1.16%
(HFRO) Highland Floating Rate Opportu Senior Loan -7.36% 6.79% -1.2 86% 2.43% 0.60 -6.41% 29% 1.71%
(FRA) BlackRock Float Rate Strat Senior Loan -11.51% 6.42% -0.6 98% 3.96% 0.44 -1.79% 29% 1.19%
(EFT) EV Floating Rate Income Senior Loan -11.22% 6.17% -0.6 88% 4.26% 0.42 -1.81% 35% 1.27%
(EFF) EV Floating-Rate Inc Plus Fund Senior Loan -12.75% 6.23% -0.5 95% 3.10% 0.40 -1.34% 36% 1.43%
(EFR) EV Senior Floating Rate Senior Loan -10.88% 6.45% -0.5 100% 4.79% 0.35 -1.36% 34% 1.30%
(WIA) Western Asset Infl-Lnkd Income Government Bonds -13.39% 3.72% -0.7 101% 2.76% 0.35 -0.88% 32% 0.94%
(MAV) Pioneer Muni High Inc Adv High Yield Munis -7.97% 4.75% -0.9 107% 6.20% 0.34 -1.57% 37% 1.09%
(BWG) BrandywineGLOBAL-Gl Inc Opps Global Income -15.38% 6.64% -0.3 104% -2.09% 0.31 -0.39% 37% 1.57%

6. Summary statistics

The average premium/discount of all the CEFs in the database is -5.23%, a significant increase of 48 bps from -5.71% in the previous month. Equity CEF discounts contracted by 68 bps to -6.53%, while fixed income CEF discounts contracted by 36 bps to -4.57%.

The average distribution yield of all the CEFs in the database is 6.85%, unchanged from the month prior. Equity CEFs average 8.27% yield, while fixed income CEFs average 6.05% yield.

The average 1-year z-score of all the CEFs in the database is +0.69, a slight increase from +0.58 a month prior. Equity CEFs have an average z-score of +0.19, while fixed income CEFs have the same average z-score of +1.00.

7. D x Y x Z performance tracker

How useful are the D x Y x Z top lists? Aside from using them primarily for our three monthly picks (which also involves some subjective judgement), we can also evaluate the raw predictive power of this metric by comparing the 3 or 6-month total return values of the top 10 D x Y x Z funds from 3 or 6 months ago, respectively. The links to the past reports from 3 and 6 months are below:

Here are the results for the equity CEFs. Remember that these lists are the top 10 D x Y x Z funds from 3 and 6 months ago, respectively.

The data below shows that the average of the top 10 D x Y x Z slightly outperformed the average for all equity CEFs at 3 months, and substantially outperformed the average at 6 months.

Here are the results for the fixed income CEFs. The top 10 D x Y x Z slightly outperformed the average for all fixed income CEFs at 3 months, and slightly trailed the average at 6 months.

Commentary

U.S. stocks (SPY) broke to all-time highs this month with +4.09% performance. International stocks (ACWX) gained +2.81%, while high-yield bonds posted a +1.31% return. With a "risk-on" resurgence, long-term treasuries (TLT) fell -1.99%, and corporate bonds (LQD) were only mild up (+0.44%). A basket of high-yield CEFs (YYY) gained +2.21%.

Chart

According to Lipper Alpha Insight, equity CEFs and fixed income CEFs rose +1.40% and +1.01%, respectively, on an NAV basis. However, unlike last month "Treading Water", some optimism seems to have returned to CEFs, perhaps buoyed by the markets striking new high last month. We saw a significant contraction of overall discounts by 48 bps this month to -5.23%, which is a 1-year premium/discount high. In fact, our records show that average discounts are tightest since January 2018 with a -4.71% average discount. The average 1-year z-score of +0.69 is also a 1-year high as well and is the highest since July 2017 (!) with an average +0.79 1-year z-score. This valuation boost has been mainly driven by the contraction of the discounts of fixed income CEFs, as their -4.57% average discount is also a 1-year high (also highest since January 2018). On the other hand, the average equity discount of -6.53% is still some way below the narrowest discount of -4.95% reached in June of last year.

Fixed income CEFs are striking back, and striking back hard! Fears of rising rates decimating fixed-rate assets now seem like a distant memory, but it was only a short year ago that fixed income CEFs were being indiscriminately sold off on the prospect of rate hikes in 2019. Here are some scary headlines to jog your memory:

All the while, we were telling members our contrarian viewpoint that rate fears may have been overblown, and to possibly seek to rotate out of overvalued equity CEFs into fixed income CEFs on the basis of their diverging valuations at that time. For example, in last year's "The Chemist's CEF Report - April 2018: CEF Discounts Widen To 12-Month Lows", we wrote:

I continue to maintain that fixed income CEFs are now more attractively valued than equity CEFs at this juncture. I would recommend that members look through their equity CEF holdings and identity possible funds that might be overvalued and consider replacing it with a possible CEF or ETF alternative as a means of locking in profits would could lead to a growing income stream as well. Feel free to message at any time if you have any questions about any particular CEF holding or possible replacements.

Moreover, despite fears of rising rates, fixed income CEFs still have a valuable role to play in a portfolio, in my opinion. We have seen this month how our Tactical Income and Income Generator portfolios were protected from the recent market downturn as a result of their fixed income allocations. SPY dropped -2.55% in the month of March, but our Tactical Income/TI-100 portfolios rose +0.01% and +0.07% respectively, while our Income Generator portfolio gained +1.12%. I also lean towards the side of thinking that interest rate rises are already mostly baked into fixed income instrument (including fixed income CEF) prices. Additionally, as mentioned last month, senior loan CEFs actually stand to benefit from rising rates, but many continue to trade at rather attractive discounts.

Indeed, our prediction from last year has exactly come to pass as fixed income CEFs are now more expensive than equity CEFs, for the fourth month running (although the spread has narrowed a little from last month).

This serves as a reminder that it often pays to switch off the talking heads on Bloomberg, CNBC, etc. and look rationally at the situation at hand, and to be disciplined in sticking with your investment plan (you should make one if you don't have one already!). Since market timing is impossible to perform consistently, I believe that it is a more rational strategy to use valuation to guide our CEF investing strategy rather than chasing whatever sector is hot. With that in mind, our message is pretty much the same as it has been for the last several months: CEFs as a whole are fairly valued or even (for certain fixed income sectors) slightly overvalued, so now is the time to be cautious rather than exuberant. Watch for bubbles! Seek to harvest gains from any overvalued funds that you may be owning and deploy into similar funds at cheaper valuations in order to "compound income on steroids".

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.