QUARTERLY CLOSED END FUND REVIEW & OUTLOOK

Transcription

1 QUARTERLY CLOSED END FUND REVIEW & OUTLOOK 4th Quarter 2013 Review & 1st Quarter 2014 Outlook Intermediate/Advanced CEF Skill Level January 8, 2014 John Cole Scott, CFS Portfolio Manager, Executive Vice President Closed End Fund Advisors, Inc. Closed End Fund Advisors is a Registered Investment Advisory Firm Specializing in Closed End Fund Research, Trading and Management Founded in 1989.

2 Disclaimer Important: The information in this presentation is not for general circulation and should not be considered an offer, or solicitation, to deal in any of the mentioned funds. The information is provided on a general basis for information purposes only, and is not to be relied on as advice, as it does not take into account the investment objectives, financial situation or particular needs of any specific investor. Any research or analysis used to derive, or in relation to, the information herein has been procured by Closed End Fund Advisors ( CEFA ) for its own use, and may have been acted on for its own purpose. The information herein, including any opinions or forecasts have been obtained from or is based on sources believed by CEFA to be reliable, but CEFA does not warrant the accuracy, adequacy or completeness of the same, and expressly disclaims liability for any errors or omissions. As such, any person acting upon or in reliance of these materials does so entirely at his or her own risk. Any projections or other forward looking statements regarding future events or performance of countries, markets or companies are not necessarily indicative of, and may differ from, actual events or results. No warranty whatsoever is given and no liability whatsoever is accepted by CEFA or its affiliates, for any loss, arising directly or indirectly, as a result of any action or omission made in reliance of any information, opinion or projection made in this presentation. The information herein shall not be disclosed, used or disseminated, in whole or part, and shall not be reproduced, copied or made available to others without CEFA expressed written permission. CEFA reserves the right to make changes and corrections to the information, including any opinions or forecasts expressed herein at any time, without notice. 2

3 What Is CEF Advisors? Investment Management, Research & Data Independent, Fee Only & Family Owned Scott Letter: Closed End Fund Report Discretionary Portfolio Management Daily CEF News Alert System Weekly CEFA s Closed End Fund Universe Report Monthly Best Ideas CEF List, Hourly & Project Based CEF Consulting Work Founder: CEF Network on LinkedIN (1128 members) 3

4 Current Closed End Fund Options & Assets 4Q 2013 Ended with 598* US listed Closed End Funds 41 US Equity Funds 122 (+1) Specialty Equity Funds 63 (+1) Non US Equity Funds 226 Total Equity Funds 163 ( 5) Taxable Bond Funds 105 National Municipal Bond 104 State Specific Municipal Bond 372 Total Bond Funds Source: CEF Universe Data Source: CEFA s CEF Universe Report 12/31/13 (cefuniverse.com) 4

5 Various CEF Overview Data for Major Groups Source: CEFA s Closed End Fund Universe 12/31/13 ( 5

6 Closed End Current Discounts Avg CEF Discount % as of December 31, Average CEF Discount Non US Equity 8.33 Special Equity 6.95 Taxable Bond 6.38 Nat Muni Bond 6.36 State Muni Bond US Equity Source: CEFA s Closed End Fund Universe ( 6

7 Closed End Discount Trends 4Q 2013 Ended with an average CEF Discount of 7.09% 3 % All CEFs Average CEF Discount 04 May Dec 13 All CEFs 0 % 3 % 6 % 9 % 12 % 15 % 4 May 12 4 Aug 12 4 Nov 12 4 Feb 13 4 May 13 4 Aug 13 4 Nov 13 Source: CEFA s Closed End Fund Universe ( 7

8 Closed End Discount Trends Main Peer Groups Average CEF Discount 01 Jan Dec 13 US Equity Non US Equity Special Equity Taxable Bond Nat Muni Bond State Muni Bond 10 % 5 % 0 % 5 % 10 % 15 % 20 % 1 Jan 13 1 Apr 13 1 Jul 13 1 Oct 13 Source: CEFA s Closed End Fund Universe ( 8

9 Closed End Funds: By Yield (Total Market Price Distribution Yield) 8.0% 9.0% Yield Under 5% 22.1% 21.4% Yield 5%-6.5% Yield 6.5%-8% Yield 8% -10% 37.5% Yield Over 10% Note: 598 closed-end funds; data as of 12/31/13, Source: CEFA s Closed-End Fund Universe ( 9

10 Relative UNII for CEF Bond Funds Main Peer Groups - Relative UNII 04-May Dec-13 Taxable Bond Nat Muni Bond 60 % 40 % 20 % 0 % 20 % 40 % 60 % 4 May 12 4 Aug 12 4 Nov 12 4 Feb 13 4 May 13 4 Aug 13 4 Nov 13 Source: CEFA s Closed End Fund Universe ( 10

11 Return of Capital (90 Day) For CEFs 50.0 % 45.0 % 40.0 % 35.0 % 30.0 % 25.0 % 20.0 % 15.0 % 10.0 % 5.0 % Main Peer Groups - Historical ROC 04-May Dec-13 US Equity Non US Equity Special Equity Taxable Bond Nat Muni Bond State Muni Bond 0.0 % 4 May 12 4 Aug 12 4 Nov 12 4 Feb 13 4 May 13 4 Aug 13 4 Nov 13 Source: CEFA s Closed End Fund Universe ( 11

12 Destructive RoC Fund Grouping # Funds with Destructive RoC % Funds with Destructive RoC Average Destructive RoC % US Equity Funds 1 2% 47% Non US Equity Funds 5 8% 43% Specialty Equity Funds 14 11% 33% Equity CEF 20 9% 36% Taxable Bond Funds 26 16% 19% National Muni Bond Funds 4 6% 26% State Muni Bond Funds 1 1% 11% Bond CEF 31 8% 19% Average CEF 51 9% 26% *Whitepaper Source: CEFA s Closed End Fund Universe 12/31/13 ( 12

13 Top 10 Funds with Highest Destructive RoC % Rank Ticker Name Classification Destructive RoC % 1 EXD EV Tx-Adv Bnd & Opt Stgs Fd National Muni Bond Funds 96% 2 BCX BR Res & Com Stgy Tr Specialty Equity Funds 87% 3 BCF BR Real Ast Eq Tr Specialty Equity Funds 84% 4 IHD ING Emrg Mkt Hi Div Eq Fd Non U.S. Equity Funds 67% 5 GNT GAMCO NtrRes Gd & Incm Tr Specialty Equity Funds 65% 6 JGT Nuv Divr Crncy Opp Fd Taxable Bond Funds 57% 7 MIN MFS Imd Incm Tr Taxable Bond Funds 54% 8 MGF MFS Govt Mkt Incm Tr Taxable Bond Funds 53% 9 IGR CBRE Clr Glbl Rel-Est Incm Fd Specialty Equity Funds 51% 10 CFP Cornerstone Progressive Rtn Fd U.S. Equity Funds 47% Source: CEFA s Closed End Fund Universe 12/31/13 ( 13

14 Earnings Coverage Ratio For Closed End Funds All Groups - Earnings Coverage Ratio 01-Jun Dec % All CEFs All Equity All Bond US Equity Non US Equity Special Equity Taxable Bond Nat Muni Bond State Muni Bond 100 % 80 % 60 % 40 % 20 % 0 % 1 Jun 12 1 Sep 12 1 Dec 12 1 Mar 13 1 Jun 13 1 Sep 13 1 Dec 13 Source: CEFA s Closed End Fund Universe ( 14

15 Income Only Yield For Closed End Funds Main Peer Groups Income Historical Dividend 04 May Dec 13 US Equity Non US Equity Special Equity Taxable Bond Nat Muni Bond 10 % 9 % 8 % 7 % 6 % 5 % 4 % 3 % 2 % 1 % 4 May 12 4 Aug 12 4 Nov 12 4 Feb 13 4 May 13 4 Aug 13 4 Nov 13 Source: CEFA s Closed End Fund Universe ( 15

16 3Q & 4Q 2013 Closed End Fund Dividend Increases vs. Decreases Dividend Announcement Number of Announcements Average Percentage Change Dividend Maintains 3012 (90%) N/A Dividend Increases 135 (4%) +12% Dividend Decreases 200 (6%) 8% Under 5% Increase 83(61%) +1.9% Over 5% Increase 62 (39%) +23.5% Under 5% Decrease 92 (46%) 2.49% Over 5% Decrease 108 (54%) 13 % Source: Fund Press Releases 16

17 Recent Closed End Fund Dividend Increases vs. Decreases 120 Major CEF Groups: Number of dividend decreases / increases June 1, 2013 to December 31, Div Decreases Div Increases U.S. Equity Funds Non U.S. Equity Funds Specialty Equity Funds Taxable Bond Funds National Muni Bond Funds Source: Fund Press Releases 17

18 Closed End Funds: By Average Daily Liquidity (thousands) 14.9% 32.1% 4.3% 1.0% 2.0% 7.2% 17.7% 20.7% under $100 $100 - $250 $250 - $500 $500 - $1,000 $1,000 - $2,500 $2,500 - $5,000 $5,000 - $10,000 $10,000 + Note: 598 closed-end funds; data as of 12/31/13, Source: CEFA s Closed-End Fund Universe ( 18

19 CEF Volume Trends Fund Grouping Avg Vol 30day Avg Vol 90day Volume Trend US Equity Funds 111, ,741 10% Non US Equity Funds 87,923 74,776 19% Specialty Equity Funds 176, ,483 18% Ave Equity CEF 140, ,366 17% Taxable Bond Funds 167, ,225 21% National Muni Bond Funds 172, ,560 42% State Muni Bond Funds 55,431 38,481 43% Ave Bond CEF 137, ,842 33% Average CEF 138, ,557 27% Data as of December 31, 2013 Source: CEFA s Closed End Fund Universe Report 19

20 CEF Press Release Summary (2510 CEF PRs in 4Q) Announcement Type 4Q 2013 Full Year Q 2012 Avg per Q since 2012 Investment Policy Change Leverage Amount Change Name Change Rights Issue Tender Offer Director Change Fund Manager Change Secondary Offering Distribution Policy Change Leverage Type Change Source: Fund Press Releases 20

21 4Q & 2013 Closed End Fund NAV / Market Price Performance Fund Grouping 4Q NAV 4Q Mkt Pr 2013 NAV 2013 Mkt Pr US Equity Funds 7% 8.1% 22.2% 25.0% Non US Equity Funds 3.7% 5.0% 9.0% 8.7% Specialty Equity Funds 3.5% 2.8% 12.3% 8.4% Ave Equity CEF 4.2% 4.4% 13.2% 11.6% Taxable Bond Funds 2.8% 2.1% 5.3% 0.9% National Muni Bond Funds 0.5% 0.4% 6.4% 13.8% State Muni Bond Funds 0.6% 0.8% 6.5% 15.2% Ave Bond CEF 1.5% 0.6% 1.4% 8.7% Average CEF 2.5% 2% 4.1% 1.1% Source: CEFA s Closed End Fund Universe Report 21

22 Closed End Fund Activist Update Month Filed Filing/ Type Closed End Fund Investor Notes Dec 13D/A Zweig Total Return Fund (ZTR) Bulldog 4.98% Nov 13D/A Western Asset Inflation Management (IMF) Bulldog Inc (10.83%) Nov 13D/A Zweig Total Return Fund (ZTR) Karpus Inc (5.97%) Oct Rights Cornerstone Total Return Fund (CLM) Public 107% of NAV per share Oct 13D/A Special Opportunities Fund (SPE) Karpus Dec (31.56%) Source: AST Group Activist Report: 22

23 CEF Institutions & Activist Holdings Activist Holdings Trends previous 6 months Increase: 209 funds Decrease: 75 funds Source: CEFA s Closed End Fund Universe ( 23

24 Closed End Fund Historical IPOs Number of IPOs Average Assets In $ millions Total New CEF IPO Assets in $ Billions $599 $517 $316 $451 $200 $131 $690 $506 $452 $462 $591 $14.4 $11.9 $6.0 $7.7 $2.6 $0.3 $27.6 $10.6 $21.2 $23.1 $ Year Average: 26 Funds per year, $432M Ave Fund, $12.5 Billion Per Year Source: Fund Press Releases, CEF Association 24

25 4Q 2013 IPO Details Royce Global Value Fund (RGT) IPOed on October 18, 2013 IPO Price: $8.88 IPO Assets: $99.5M Price as of 12/31/13: $8.89 Disc/Prm as of 12/31/13 : 10.92% Ares Multi Strategy Credit Fund (ARMF) IPOed on October 29, 2013 IPO Price: $25.00 IPO Assets: $130M Price as of 12/31/13: $21.17 Disc/Prm as of 12/31/13 : 11.35% Goldman Sachs MLP Income Opps (GMZ) IPOed on November 26, 2013 IPO Price: $20.00 IPO Assets: $826.3M Price as of 12/31/13: $20.80 Disc/Prm as of 12/31/13 : 5.58% Source: Fund Press Releases 25

26 IPOs during 1Q 3Q 2013 Current Discount / Premium Data as of December 31, 2013 Source: CEFA s Closed End Fund Universe Report 26

27 Closed End Fund NAV Market Price Correlation Fund Grouping Correlation 30day Correlation 90day Correlation Trend US Equity Funds 76.0% 76.1% 0% Non US Equity Funds 80.2% 85.9% 6% Specialty Equity Funds 56.7% 70.8% 15% Ave Equity CEF 66.8% 75.9% 10% Taxable Bond Funds 15.1% 43.6% 29% National Muni Bond Funds 38.5% 37.6% 76% State Muni Bond Funds 32.6% 42.5% 75% Ave Bond CEF 13.5% 41.6% 55% Average CEF 16.8% 54.5% 38% Data as of December 31, 2013 Source: CEFA s Closed End Fund Universe Report 27

28 90 Day NAV/Price Correlation For Closed End Funds All Groups - 90 Day NAV/Price Correlation 22-Jun Dec All CEFs All Equity All Bond US Equity Non US Equity Special Equity Taxable Bond Nat Muni Bond State Muni Bond Jun Sep Dec Mar Jun Sep Dec 13 Source: CEFA s Closed End Fund Universe ( 28

29 Closed End Fund Market Price Volatility vs. NAV Volatility (1 Year) U.S. Equity Funds Non U.S. Equity Funds Specialty Equity Funds Taxable Bond Funds National Muni Bond Single State Muni Bond Price Volatility NAV Volatility Source: December 31, 2013 CEFA s Closed End Fund Universe Report 29

30 New Data for CEF Universe During 4Q 2013 Destructive RoC% Comp Data Columns 30 Day Correlation Correlation Trend QTD Price & NAV TR 6 month Price & NAV TR Earnings Date Leverage Types / Leverage Subtypes Comp 6Mo NAV TR *We are open to ideas on what to include 30

31 CEFA s Outlook for 1Q 2014 Bond Funds vs. Equity Funds Why? Dividend Cuts Continue CEFs Benefit From Fixed Capital Muni Bonds Still Reasonably Priced We like REIT, Senior Loan, High Yield, Convertible Bond, US Equity (ok), International / Global Equity (Leveraged), MLP, Cov Call CEFs (well screened) Watch UNII Trend, RoC % (Destructive)/ Trends and Earnings Coverage Sustainable Dividends, Leveraged Adjusted NAV Yield NAV Performance vs. Peers Swap CEFs As Needed Relative Discount and Z Stat, Relative Discount Range 31

32 What You Asked Us to Cover In Webinar Registration Discount trends (ranges) relative to historical norms / outlook for this coming quarter Are current discounts vs. avg. discounts as relevant as they used to be? / Z stat Why is investing in CEFs with premiums considered a bad investment? Best Income funds w/ stable earnings (2) Muni Fund outlook (4) / New York Muni fund outlook Analyzing UNII, especially negative UNII Tax loss selling / Price volatility How will rising interest rates effect leveraged funds, covered call funds, etc. (4) IPO trends (2014) and opportunities / Activist trends Opportunities with MLP funds and the tax implications Difference between good and bad RoC What CEFs distributions contained destructive RoC in 2013? Opportunities for safety? How do you protect downside? How do EXG & FAV look vs. in Dec.? Rights offerings/ underwriters New CEF Universe Data How to build a portfolio of CEFs/ new products in the pipeline/ buy and hold opportunities 32

33 Closed End Fund Deaths Period Average Number of Funds fund funds funds per year per year per year per year per year per year Causes: Open ending, liquidation & conversion Source: Fund Press Releases Source: CEF Press Releases 33

34 Closed End Fund Deaths CEF Funds Open Ended, Liquidated or Converted to ETF Converted to ETF Liquidated Open ended Causes: Open ending, liquidation & conversion Source: Fund Press Releases Source: Fund Press Releases 34

35 Closed End Fund Mergers 60 Closed End Funds Merged into Other Closed End Funds (December 2013) 50 Number of Closed End Funds Reasons to Merge: 1. Reduce expense ratio 2. Increase liquidity 3. Reduce bid/ask spread 4. Improve cost of future leverage Source: Fund Press Releases Avg per year 35

36 CEF Advisors Links (*NEW*) Whitepaper: How to Analyze Destructive Return of Capital for Closed End Funds HowtoAnalyzeDestructiveReturnOfCapitalForCEFs.pdf CEFA Website: CEFA s Blog: Blog.com Published Articles Benzinga: cole scott Seeking Alpha: cole scott/articles WealthManagement.com: scott Weekly CEF Data (14 Day Trial) & Daily News Alerts (10 Day Trial): Best Ides List CEF Universe Data Definitions: CEFA s Form ADV Part 2A and 2B II Form.pdf 36

37 For Your Information Free CEF Resources **NEW** CEFAnalyzer LLC: The Closed End Fund Association: EndFunds.com CEF Connect (Nuveen Sponsored): Morningtar's CEF Site: Closed End Funds.aspx Investment Company Institute: CEFNetwork (Pristine Advisers): CEF Insight (Activist Info from AST Fund Solutions): Capital Link's CEF Portal: Morningstar Discussion Board (77K+ posts since 1998): The CEF Network on LinkedIN (1130+ Members): Network.com Seeking Alpha: end funds Jeff Margolin at First Trust: More Useful Links at: 37

38 Principal s Biographies George Cole Scott Sr. Portfolio Manager, President of Closed End Fund Advisors George sinvestmentcareerstartedin1969whenhejoinedaregionalbrokeragefirmafteracareerasa journalist. In 1976 he helped a client buy control of a deeply discounted CEF which became Bergstrom Capital (AMEX: BEM). He served on the board of the fund for 27 years. In 1987 he founded The Scott Letter: Closed End Fund Report which was a well regarded print newsletter ending the publication when he became a shareholder of CEF Advisors in In 1991 he co authored the only hardback book on CEFs with a finance professor. He is a graduate of The University of Washington, holds the FINRA 66 License and is a long time member of The CFA Society and CFA Virginia. He has been widely published and interviewed. He has also worked with various closedend funds on a consulting basis. George is one of a few CEF specialists with more than four decades of CEF expertise. John Cole Scott, CFS Portfolio Manager, Executive VP of Closed End Fund Advisors John has worked at the firm since He sits on the firm s investment committee and holds the FINRA 66 License and the Certified Fund Specialist designation (CFS). He is a graduate of The College of William and Mary and has been quoted widely in the financial press and presented at conferences and for investment groups on more than 25 occasions. In 2008 John founded CEFA's Closed End Fund Universe, a comprehensive weekly data service covering 125 data points for all US listed closed end funds. He also founded and manages The CEF Network group on LinkedIn and is editor of the firm s blog. John is a board member of The Richmond Association for Business Economics (RABE), and serves on the Investment Committee for The New York State Society of The Cincinnati. 38

39 QUESTIONS? Closed End Fund Advisors, Inc Glen Forest Drive, Suite #105 Richmond, Virginia U.S.A. Toll Free: (800) Local: (804) Sign up or view archive for The Scott Letter: Closed End Fund Report: Register for more webinars / view on demand archive: 39