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How Resilient Were Your CEF Holdings During The 2020 Crash?

Jan. 06, 2021 7:32 PM ET
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Value, CEFs

Seeking Alpha Analyst Since 2014

At Systematic Income our aim is to build robust Income Portfolios with mid-to-high single digit yields and provide investors with unique Interactive Tools to cut through the wealth of different investment options across BDCs, CEFs, ETFs, mutual funds, preferred stocks and more. Join us on our Marketplace service Systematic Income.

Our background is in research and trading at several bulge-bracket global investment banks along with technical savvy which helps to round out our service. 


  • Welcome to another blog post from Systematic Income.
  • We take a look at how investors can gauge the resilience of their CEF holdings during last year's market crash.
  • We have maxed out our discount to 20% off our sticker price until the weekend.
  • Take a 2-week free trial of Systematic Income to explore our Income Portfolios and our CEF Tool.

The market roundtrip of 2020 put a lot of stress on income portfolio holdings and reinforced our core message that investors have to be aware which funds "bend" and which funds "break" under severe stress. This is because income and portfolio capital levels are ultimately linked so if investors want to be able to maintain healthy levels of income they have to ensure that their portfolio holdings are able to maintain their value during good times and bad. 

One way in which we measure CEF resilience is to look at fund NAV performance over the 2020 period when both major stock and credit indices returned back to flat i.e. having a zero total return. This period roughly captures the February to August level. Funds that had a significant negative NAV return over this period are less resilient by this metric. 

There are different ways that funds could result with a negative total return in the period when broad equity and credit indices were flat. They may have deleveraged and locked in permanent capital losses. They may have mismanaged the drawdown by buying and selling securities resulting in a net loss. Or their portfolio may have suffered losses due to defaults. 

The way we measure this is through a new metric we call COVID Resilience which measures the fund's total NAV return over this period. The higher this number the better the fund has held up in the sector. The sample screenshot from our CEF Tool below shows these numbers for the Preferreds CEF sector. The average NAV return in the sector was -9% during this period with the figures ranging from -18% to -5%. 

Investors can use these numbers to gauge which funds are likely to hold up better if we see another significant drawdown. Take a trial of Systematic Income and explore COVID Resilience metrics for other funds and sectors.

Thanks for reading. Be sure to take a 2-week trial of Systematic Income while the 20% max-discount is in place until this weekend.

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Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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