Weekly Closed-End Fund Roundup: ZTR Offering Expires (September 11, 2022)

Sep. 23, 2022 4:05 AM ETBANX, BHK, CEE, CGO, DMB, DNP, ECC, ECC.PD, ECCC, ECCV, ECCW, ECCX, EXG, GCV, GGT, GGT.PE, GGT.PG, GUT, GUT.PC, HYB, HYT, MCN, NDP, NOM, OCCI, OCCIN, OCCIO, OIA, OPP, OPP.PA, OPP.PB, OXLC, OXLCL, OXLCM, OXLCN, OXLCP, OXLCZ, OXLNP, RCG, RLTY, RMI, TPZ, TTP, TYG, VFL, ZTR

Summary

  • 14 out of 23 CEF sectors were positive on price and 16 out of 23 sectors were positive on NAV last week.
  • HYT conducts a rights offering.
  • ZTR rights offering has expired.
  • Looking for a helping hand in the market? Members of CEF/ETF Income Laboratory get exclusive ideas and guidance to navigate any climate. Learn More »

Trading charts background

da-kuk

Author's note: This article was released to CEF/ETF Income Laboratory members on September 13th, 2022. Please check latest data before investing.

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. Data is taken from the close of Friday, September 9th, 2022.

Weekly performance roundup

14 out of 23 sectors were positive on price (up from 0 last week) and the average price return was 0.78% (up from -2.25% last week). The lead gainer was Convertibles (+3.68%) while California Munis lagged (-2.68%).

Chart

Income Lab

16 out of 23 sectors were positive on NAV (up from 0 last week), while the average NAV return was +1.14% (up from -2.84% last week). The top sector by NAV was Real Estate (+3.48%) while the weakest sector by NAV was California Munis (-1.07%).

Chart

Income Lab

The sector with the highest premium was Limited Duration (+1.78%), while the sector with the widest discount is MLPs (-14.24%). The average sector discount is -4.39% (down from -3.96% last week).

Chart

Income Lab

The sector with the highest premium/discount increase was Senior Loans (+0.56%), while Real Estate (-2.22%) showed the lowest premium/discount decline. The average change in premium/discount was -0.42% (down from +0.30% last week).

Chart

Income Lab

The sector with the highest average 1-year z-score is Covered Call (+0.58), while the sector with the lowest average 1-year z-score is Preferreds (-0.92). The average z-score is -0.12 (down from +0.06 last week).

Chart

Income Lab

The sectors with the highest yields are Asia Equity (13.92%), Global Equity (11.72%), and Emerging Market Income (10.41%). Discounts are included for comparison. The average sector yield is +8.20% (down from +8.26% last week).

Chart

Income Lab

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.

Fund Ticker P/D decrease Yield P/D z-score Price change NAV change
RENN Global Entrepreneurs Fund (RCG) -7.42% % -7.86% -0.7 -5.24% 0.88%
Eaton Vance Tax-Mgd Glb Divrs Equity Inc (EXG) -6.59% 9.90% 0.12% 0.2 -2.68% 1.87%
Cohen & Steers Real Estate Opp & Inc Fd (RLTY) -6.02% 7.80% -12.23% 0.0 -2.32% 4.41%
The Central and Eastern Europe Fund (CEE) -6.00% 11.82% 31.31% 0.5 -3.91% 0.49%
OFS Credit Company Inc (OCCI) -5.64% 20.91% -3.11% 0.3 -3.31% 0.00%
Gabelli Utility Trust (GUT) -4.69% 7.65% 94.54% 0.8 -0.13% 2.28%
Nuveen MO Quality Muni Inc (NOM) -4.66% 3.88% 7.01% 0.0 -4.85% -0.69%
DNP Select Income (DNP) -4.32% 6.97% 11.81% -0.8 -1.06% 2.77%
ArrowMark Financial Corp (BANX) -4.05% 8.43% -11.04% -1.3 -5.71% 0.00%
BlackRock Core Bond (BHK) -3.91% 8.04% -5.03% -0.7 -3.72% 0.26%

Chart

Income Lab

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.

Fund Ticker P/D increase Yield P/D z-score Price change NAV change
Gabelli Multimedia (GGT) 8.73% 11.27% 61.97% 2.6 6.84% -0.21%
Invesco Municipal Inc Opp I (OIA) 8.07% 4.96% 7.45% 2.4 6.79% -1.23%
Eagle Point Credit Company LLC (ECC) 6.74% 14.25% 11.40% 0.9 5.27% 0.00%
Madison Covered Call & Eq Strat (MCN) 6.40% 8.76% 15.13% 3.0 8.30% 2.29%
Oxford Lane Capital Corp (OXLC) 5.22% 14.68% -0.16% -1.0 4.43% 0.00%
Calamos Global Total Return (CGO) 4.72% 9.68% 19.46% 3.7 6.99% 2.77%
BNY Mellon Muni Bond Infrastructure Fund (DMB) 4.22% 4.65% 13.44% 1.9 3.09% -0.74%
RiverNorth Opp Muni Income Fund Inc (RMI) 4.12% 7.08% -0.03% 1.8 3.98% -0.73%
New America High-Income (HYB) 3.31% 8.34% -8.78% -0.3 1.27% -3.08%
Gabelli Conv Inc Secs (GCV) 3.26% 8.59% 14.31% 0.6 7.09% 4.04%

Chart

Income Lab

Recent corporate actions

These are from the past month. Any new news in the past week has a bolded date:

August 1, 2022 | Angel Oak Capital Advisors Announces the Completion of the Reorganization of Angel Oak Dynamic Financial Strategies Income Term Trust with and into Angel Oak Financial Strategies Income Term Trust.

Upcoming corporate actions

These are from the past month. Any new news in the past week has a bolded date:

September 8, 2022 | BlackRock Corporate High Yield Fund, Inc. Announces Terms of Rights Offering.

September 1, 2022 | SALIENT MIDSTREAM & MLP FUND ANNOUNCES SHAREHOLDER APPROVAL OF REORGANIZATION WITH SALIENT MLP & ENERGY INFRASTRUCTURE FUND.

August 11, 2022 | Abrdn's U.S. Closed-End Funds Announce Special Shareholder Meetings Relating to Proposed Acquisition of Assets of Four Delaware Management Company-Advised Closed-End Funds.

August 11, 2022 | RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. Announces Transferable Rights Offering expiration Date. The subscription period will expire on September 23, 2022, unless extended by the Board (the "Expiration Date").

August 10, 2022 | Tortoise Announces Tender Offers for its Closed-End Funds.

August 1, 2022 | Virtus Total Return Fund Inc. Rights Offering Declared Effective.

July 22, 2022 | Delaware Investments National Municipal Income Fund Announces Self-Tender Offer for up to Fifty Percent of Its Shares.

Recent activist or other CEF news

These are from the past month. Any new news in the past week has a bolded date:

August 4, 2022 | Saba Capital Reaches Agreement Regarding Salient Midstream & MLP Fund.

Commentary

1. HYT rights offering

This analysis will be republished to the public in a separate article.

2. ZTR rights offering expires

The rights offering for Virtus Total Return Fund Inc. (NYSE:ZTR) expired on September 16, 2022. This is a non-transferable, 1-for-3 rights offering. We discussed this in a previous CEF Weekly Roundup.

ZTR is a $400m hybrid equity/fixed income fund focused on the utilities/infrastructure sector. It isn't a portfolio position, but Nick last covered ZTR for our members here: ZTR: Utilities To The Rescue.

To recap, the subscription price will be equal to the lower of 95% of the NAV on the expiry date, or 95% of the average closing market price on the final five days of the offering. The lack of a "floor" for the subscription price means that the offering is more likely to be dilutive to the NAV/share of the fund; in fact, the minimum NAV hit would be -1.47% according to the subscription formula assuming full subscription including the oversubscription allotment.

We generally suggest investors sell a fund which is undergoing a rights offering, particularly before the ex-rights date. Hence, we also recommended our members to sell ZTR before its ex-right date.

Chart

Income Lab

We can see that this prediction has proven to be correct once again, with ZTR's price greatly underperforming its NAV since then by over 15 percentage points (!).

Chart

Income Lab

Of course, this is due to ZTR's discount which has continued to widen.

Chart

Income Lab

The -11.19% discount now makes ZTR attractively priced vs. its historical averages. Therefore, new investors looking to get into ZTR could potentially start buying a few shares here if they are interested initiating a new position in the fund. However, it may be more prudent to wait for the rights offering to expire and the new shares to be issued before buying, as this is where the selling pressure should theoretically ease.

Chart

Income Lab

However, another factor to consider here is that ZTR's offering is now set to be highly dilutive to the NAV/share of the fund. Remember, without a floor to the subscription price, the extent of dilution worsens as the fund's discount widens (which could lead to a "vicious cycle" of further discount widening as investors price in the decreased NAV). At current prices, the NAV/share dilution is estimated to be about -3.9%. Meaning that the current -11% discount is overestimated; it should only by around -7.6% with the reduced NAV.

The lack of a floor also means that investors who own rights of ZTR would always benefit from subscribing vs. allowing their rights to expire worthless. Since this is a non-transferable offering, there's no opportunity to resell the rights on the secondary market. Therefore, members who own ZTR rights should remember to subscribe with all of their rights before the expiry date.

Strategy Statement

Our goal at the CEF/ETF Income Laboratory is to provide consistent income with enhanced total returns. We achieve this by:

  • (1) Identifying the most profitable CEF and ETF opportunities.
  • (2) Avoiding mismanaged or overpriced funds that can sink your portfolio.
  • (3) Employing our unique CEF rotation strategy to "double compound" your income.

It's the combination of these factors that has allowed our Income Generator portfolio to massively outperform our fund-of-CEFs benchmark ETF (YYY) whilst providing growing income, too (approx. 10% CAGR).

Chart

Income Lab

Remember, it's really easy to put together a high-yielding CEF portfolio, but to do so profitably is another matter!

Don't know what to do about CEF corporate actions?

Closed-end funds news and recommendations are now exclusive to members of CEF/ETF Income Laboratory. We also manage closed-end fund (CEF) and exchange-traded fund (ETF) portfolios targeting safe and reliable ~8% yields to make income investing easy for you. Check out what our members have to say about our service.

To see all that our exclusive membership has to offer, sign up for a free trial by clicking on the button below!


This article was written by

Stanford Chemist profile picture
17.68K Followers
CEF/ETF income and arbitrage strategies, 8%+ portfolio yields

CEF/ETF Income Laboratory is a premium newsletter on Seeking Alpha that is focused on researching profitable income and arbitrage ideas with closed-end funds (CEFs) and exchange-traded funds (ETFs). We manage model safe and reliable 8%-yielding fund portfolios that have beaten the market in order to make income investing easy for you. Check us out to see why one subscriber calls us a "one-stop shop for CEF research.”


Click here to learn more about how we can help your income investing!


The CEF/ETF Income Laboratory is a top-ranked newsletter service that boasts a community of over 1000 serious income investors dedicated to sharing the best CEF and ETF ideas and strategies.


Our team includes:

1) Stanford Chemist: I am a scientific researcher by training who has taken up a passionate interest in investing. I provide fresh, agenda-free insight and analysis that you won't find on Wall Street! My ultimate goal is to provide analysis, research and evidence-based ways of generating profitable investing outcomes with CEFs and ETFs. My guiding philosophy is to help teach members not "what to think", but "how to think".

2) Nick Ackerman: Nick is a former Financial Advisor and has previously qualified for holding Series 7 and Series 66 licenses. These licenses also specifically qualified him for the role of Registered Investment Adviser (RIA), i.e., he was registered as a fiduciary and could manage assets for a fee and give advice. Since then he has continued with his passion for investing through writing for Seeking Alpha, providing his knowledge, opinions, and insights of the investing world. His specific focus is on closed-end funds as an attractive way to achieve income as well as general financial planning strategies towards achieving one’s long term financial goals.

3) Juan de la Hoz: Juan has previously worked as a fixed income trader, financial analyst, operations analyst, and economics professor in Canada and Colombia. He has hands-on experience analyzing, trading, and negotiating fixed-income securities, including bonds, money markets, and interbank trade financing, across markets and currencies. He is the "ETF Expert" of the CEF/ETF Income Laboratory, and enjoys researching strategies for income investors to increase their returns while lowering risk.

4) Dividend Seeker: Dividend Seeker began investing, as well as his career in Financial Services, in 2008, at the height of the market crash. This experience gave him a lot of perspective in a short period of time, and has helped shape his investment strategy today. He follows the markets passionately, investing mostly in sector ETFs, fixed-income CEFs, gold, and municipal bonds. He has worked in the Insurance industry in Funds Management, helping to direct conservative investments for claims reserves. After a few years, he moved in to the Banking industry, where he worked as a junior equity and currency analyst. Most recently, he took on an Audit role, supervising BSA/AML Compliance teams for one of the largest banks in the world. He has both a Bachelors and MBA in Finance. He is the "Macro Expert" of the CEF/ETF Income Laboratory.

Disclosure: I/we have a beneficial long position in the shares of HYB, ECC, OCCI, OXLC, TYG, ECCV either through stock ownership, options, or other derivatives. 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.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.