quarterly closed-end fund & bdc review and outlook9/1/2017. bdc debt - total return. september...
TRANSCRIPT
QUARTERLY CLOSED-END FUND& BDC REVIEW AND OUTLOOK
John Cole Scott, CFS
Chief Investment OfficerClosed-End Fund Advisors, Inc.
3rd Quarter 2017 Review & 4th Quarter 2017 Outlook
Intermediate/Advanced CEF Skill Level
October 10, 2017
Closed-End Fund Advisors is a Registered Investment Advisory Firm Specializing in Closed-End Fund & BDC Research, Trading and Management Founded in 1989.
What Is CEF Advisors?• Investment Management, Research & Data• Independent, Fee Only & Family Owned • “Scott Letter: Closed-End Fund Report”• Discretionary Portfolio Management (SMA),
Unit Investment Trust (UIT) & Model Portfolios • CEF & BDC News/SEC Alert & “CEFA’s Closed-End
Fund Universe” Report (w/ BDCs). • Consulting with Institutional Investors and CEF Fund Sponsors • CEFData.com: CEF/BDC Web Modules Daily Data: Est $1K- $4K
per quarter based on classification (Indv, RIA or FA / Fund Sponsor)
Specializing in CEF/BDC Research, Trading & Portfolio Management
www.CEFadvisors.comFounded in 1989
What is a Closed-End Fund (CEF) / Business Development Company (BDC) ?
www.CEFadvisors.com 3
o 1940 Act Investment Company with Fixed-Capital, Active Management, and Daily Liquidity
o CEFs have traded on The NYSE since 1893o Tax-advantaged and earnings are passed through to
investors in the form of dividends and distributions (similar to REITs and MLPs)
o CEFs can have debt and preferred shares as leverages o BDCs Limited to 200% asset coverage (total assets /
total debt) or “one turn” of leverage, excluding SBIC facilities (BDCs). Higher fee structure w/ carry
o The closed-end structure is not an asset class but an investment vehicle “wrapper”
o BDCs were created by Congress in 1980 to provide an opportunity for individual non-accredited investors to participate in private investments
o BDCs are closed-end funds that provide small, growing companies access to capitalo BDCs are Domestically focused. Required to offer companies ‘managerial assistance’
www.CEFadvisors.com 7
www.CEFadvisors.com 8
-40
-30
-20
-10
0
10
20
30
40
50
9/1/2007 9/1/2008 9/1/2009 9/1/2010 9/1/2011 9/1/2012 9/1/2013 9/1/2014 9/1/2015 9/1/2016 9/1/2017
Trad CEF - Total ReturnSeptember 30, 2007 - September 30, 2017
NAV TR Price TR
Back-tested results also do not account for those Funds that were previously recommended by the Adviser and which are no longer included as an alternative in a client's asset allocation strategy. Thus, the back-tested performance results shown above may overestimate the potential returns a client could expect to generate due to the effect of recommended manager survivor bias.
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-16
-14
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-10
-8
-6
-4
-2
0
2
9/1/2007 9/1/2008 9/1/2009 9/1/2010 9/1/2011 9/1/2012 9/1/2013 9/1/2014 9/1/2015 9/1/2016 9/1/2017
Trad CEF - Average Discount / PremiumSeptember 30, 2007 - September 30, 2017
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-60
-50
-40
-30
-20
-10
0
10
20
30
40
9/1/2007 9/1/2008 9/1/2009 9/1/2010 9/1/2011 9/1/2012 9/1/2013 9/1/2014 9/1/2015 9/1/2016 9/1/2017
BDC Debt - Total ReturnSeptember 30, 2007 - September 30, 2017
NAV TR Price TR
Back-tested results also do not account for those Funds that were previously recommended by the Adviser and which are no longer included as an alternative in a client's asset allocation strategy. Thus, the back-tested performance results shown above may overestimate the potential returns a client could expect to generate due to the effect of recommended manager survivor bias.
www.CEFadvisors.com 11
-60
-50
-40
-30
-20
-10
0
10
20
9/1/2007 9/1/2008 9/1/2009 9/1/2010 9/1/2011 9/1/2012 9/1/2013 9/1/2014 9/1/2015 9/1/2016 9/1/2017
BDC Debt - Average Discount / PremiumSeptember 30, 2007 - September 30, 2017
12
1. First Lien Loans: 54%2. Second Lien Loans: 19%3. Unsecured Loans: 10%4. Equity/Other: 17%
www.CEFadvisors.com
Types of Loans Held By BDCs
Avg Portfolio Turnover: 37.2% Avg Variable Loans: 74% / Fixed: 26% Libor Floors: 41% at 1% Avg Level Avg Loan Size: $9.6M 73% of Loans Under $25MM Average Maturity 4.1 with a range of 2 Years to 6 years Avg No of Loans: 131 from 103 Companies
Source: Data as of September 29, 2017 from CEFData.com
www.CEFadvisors.com 13
-30
-20
-10
0
10
20
30
40
50
60
70
9/1/2007 9/1/2008 9/1/2009 9/1/2010 9/1/2011 9/1/2012 9/1/2013 9/1/2014 9/1/2015 9/1/2016 9/1/2017
Municipal Bonds - Total ReturnSeptember 30, 2007 - September 30, 2017
NAV TR Price TR
Back-tested results also do not account for those Funds that were previously recommended by the Adviser and which are no longer included as an alternative in a client's asset allocation strategy. Thus, the back-tested performance results shown above may overestimate the potential returns a client could expect to generate due to the effect of recommended manager survivor bias.
www.CEFadvisors.com 14
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
9/1/2007 9/1/2008 9/1/2009 9/1/2010 9/1/2011 9/1/2012 9/1/2013 9/1/2014 9/1/2015 9/1/2016 9/1/2017
Municipal Bonds - Average Discount / PremiumSeptember 30, 2007 - September 30, 2017
Municipal Bond Closed-End Fund Universe
Source: Data as of September 29, 2017 from CEFA’s Universe Data15
Note: Volatility is a one year rolling calculation
National
Muni FundsSingle State Muni Funds
Total
Number of Funds 90 81 171Net Assets (Total) $47,630 $18,545 $66,175Net Assets $529 $229 $387Earnings Coverage Ratio % 99.9 100.4 100.1Premium / Discount % -2.32 -3.76 -3.00Total Mkt Yield % 5.01 4.44 4.74Leverage Adj NAV Yield % 3.72 3.20 3.48NAV Volatility 4.15 3.98 4.07Leverage % 31.4 33.6 32.4Leverage Cost % 0.72 0.89 0.80Duration 8.78 9.49 9.11Insured % 13.2 17.1 15.0Investment Grade % 85 91 88Credit Quality A A A
Municipal Bond Closed-End Fund Universe
Source: Data as of September 29, 2017 from CEFA’s Universe Data16
Tax Equivalent Yield ComparisonMarried Couple with W-2 Income of $1MM+
Sources: CEFA’s Universe Data as of 9/29/2017 and tax rates from IRS and NY State.
17
www.CEFadvisors.com 18
-60
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-20
0
20
40
60
80
9/1/2007 9/1/2008 9/1/2009 9/1/2010 9/1/2011 9/1/2012 9/1/2013 9/1/2014 9/1/2015 9/1/2016 9/1/2017
MLP - Total ReturnSeptember 30, 2007 - September 30, 2017
NAV TR Price TR
Back-tested results also do not account for those Funds that were previously recommended by the Adviser and which are no longer included as an alternative in a client's asset allocation strategy. Thus, the back-tested performance results shown above may overestimate the potential returns a client could expect to generate due to the effect of recommended manager survivor bias.
www.CEFadvisors.com 19
-15
-10
-5
0
5
10
15
20
9/1/2007 9/1/2008 9/1/2009 9/1/2010 9/1/2011 9/1/2012 9/1/2013 9/1/2014 9/1/2015 9/1/2016 9/1/2017
MLP - Average Discount / PremiumSeptember 30, 2007 - September 30, 2017
20
Broad Investable UniverseAssets of Closed-End Funds/BDCs* by type , a s of Se p te m be r 29 , 2017
$279.4 Billion x 4.0% = ~$11 Billionin total CEF assets average discount exploitable undervaluation
# of FundsTotal Net
As s ets
P r em ium /
Dis count
Mar ket
YieldBeta Dur at ion Lever age
Non Lev
Expens e
Rat io
Aver age
Net As s ets
Equity Funds 21 2 $ 1 1 3 ,8 1 3 -4 .7 2% 6.7 1 % 1 .0 0 1 4 .0 5 % 1 .4 8 $ 5 3 7
Taxable Bond 1 4 6 $ 65 ,91 9 -2.5 4 % 7 .27 % 0 .29 3 .6 25 .67 % 1 .4 1 $ 4 5 1
Municipal Bond 1 7 1 $ 66,1 7 5 -3 .0 0 % 4 .7 4 % -0 .0 7 9.1 3 2.4 4 % 1 .0 1 $ 3 8 7
BDCs 5 0 $ 3 3 ,4 5 5 -9.0 0 % 8 .8 0 % 0 .8 3 3 7 .5 4 % 5 .93 $ 669
Tota l CEFs 5 7 9 $ 2 7 9,3 61 -4 .0 3 % 6.4 5 % 0 .4 9 6.8 2 4 .4 4 % 1.7 1 $ 4 8 2
Nat ional Muni Bond 90 $47,630 -2.32% 5.01% -0.06 8.8 31.39% 0.93 $529
De bt Focus e d BDC 4 5 $32,757 -5.86% 9.66% 0.88 39.26% 5.84 $728
Cove r e d Call 29 $20,286 -2.87% 8.15% 0.82 2.85% 1.14 $700
US Stock 29 $20,390 -7.83% 6.28% 0.96 11.19% 1.62 $703
MLP Funds 27 $13,915 -1.74% 9.69% 2.17 29.09% 1.87 $515
High Yie ld Bond 3 5 $13,036 -4.09% 7.25% 0.37 3.5 22.95% 1.22 $372
Wor ld S tock 5 6 $14,187 -7.87% 4.23% 0.97 6.11% 1.54 $253
Se nior Loan 26 $11,662 -4.44% 6.31% 0.15 1.2 33.20% 1.62 $449
Pr e fe r r e d Equity 1 6 $10,969 0.69% 7.06% 0.23 5.4 31.10% 1.24 $686
REIT Funds 1 0 $6,065 -7.88% 7.89% 0.74 21.12% 1.45 $606
Conve r t ible Bond 1 1 $4,302 -2.11% 8.74% 0.80 3.1 28.70% 1.47 $391
Inve s tm e nt Gr ade Bond 1 3 $4,113 -0.61% 5.83% 0.18 5.5 17.89% 0.90 $316
CEF Universe Update
www.CEFadvisors.com21
Source: CEFAData.com
Fund GroupingDiscount / Premium Last Q NAV TR Last Q Price TR
Discount Premium Positive Negative Positive Negative
Equity Traditional CEFs 169(80%)
43(20%)
190(90%)
22(10%)
177(83%)
35(17%)
Taxable BondTraditional CEFs
109(75%)
37(25%)
146(100%)
0(0%)
129(88%)
17(12%)
Municipal BondTraditional CEFs
125(73%)
46(27%)
171(100%)
0(0%)
147(86%)
24(14%)
BDCs 34(68%)
16(32%)
38(76%)
11(22%)
32(64%)
18(36%)
ALL CEFs 437(75%)
142(25%)
545(94%)
33(6%)
485(84%)
94(17%)
Data as of September 29, 2017For BDC funds, we show 2Q17 NAV TR, as 9/29/2017 NAV hasn’t been disclosed yet
Current Closed-End Discounts
www.CEFadvisors.com 22
Source: CEFData.com
US Equity -7.83
Non US Equity -7.87
Special Equity -2.54
Taxable Bond -2.54
Nat Muni Bond -2.32
State Muni Bond -3.76
BDC Debt Focused -5.86
BDC Equity Focused -37.24
-45 %
-40 %
-35 %
-30 %
-25 %
-20 %
-15 %
-10 %
-5 %
0 %
5 %
Aver
age
CEF
Disc
ount
Avg CEF Discount % as of September 29, 2017
Closed-End Discount TrendsTraditional & BDC
www.CEFadvisors.com 23
Source: CEFData.com
2Q Ended with an average CEF Discount of -4.03%
10 Year Average Discount: -4.91%
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
-35.00
-30.00
-25.00
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
Main Peer Groups - Average CEF DiscountMay 11, 2012 - September 29, 2017
All Trad CEFs All BDC CEFs Av All Trad CEFs Av All BDC CEFs
Closed-End Discount Trends
www.CEFadvisors.com 24
Source: CEFData.com
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
-50.00
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
- Average CEF DiscountMay 11, 2012 - September 29, 2017
US Equity Non US Equity Special Equity Taxable Bond
Nat Muni Bond State Muni Bond BDC Debt Focused BDC Equity Focused
CEF Volume Trends – 3Q 2017
www.CEFadvisors.com 25Source: CEFAData.com
Fund Grouping Avg VolLast Q
Avg VolPrev Q
Volume Trend
US Equity Funds 125,653 122,950 2%Non-US Equity Funds 51,600 58,336 -12%
Specialty Equity Funds 125,576 133,310 -6%Ave Traditional Equity CEF 103,895 109,984 -6%
Taxable Bond Funds 110,672 111,971 -1%National Muni Bond Funds 66,924 66,584 1%
State Muni Bond Funds 24,004 24,187 -1%Ave Traditional Bond CEF 76,106 76,766 -1%Average Traditional CEF 87,243 90,165 -3%
Debt Focused BDC Funds 278,162 304,856 -9%Equity Focused BDC Funds 34,539 28,500 21%
Average BDC 253,800 277,220 -8%Average For ALL CEFs 101,626 106,208 -4%
Data as of September 29, 2016
26
6.9%
12.4%
18.8%
24.7%
25.9%
8.1%
2.4% 0.7%
under $100$100 - $250$250 - $500$500 - $1,000$1,000 - $2,500$2,500 - $5,000$5,000 - $10,000$10,000 +
Note: 579 closed-end funds; data as of 9/29/17, Source: CEFData.com
www.CEFadvisors.com 27
CEF/BDC Yield Comparison
Data as of 9/29/2017.MLP Index: Alerian MLP Index; REIT Index: Wilshire US REIT Index; Corporate Debt Index: S&P 500 Bond IndexUS High Yield Indices : BofA Merrill Lynch US High Yield (BB Rated, B Rated, CCC and Lower Rated )
8.7%
9.7% 9.7%
7.9%8.2%
7.3%
6.3%
7.1%
6.3%5.8%
4.7%4.2%
7.7%
3.7%3.1%
4.1%
5.5%
10.3%
6.6% 6.4%
7.4%
6.1%
7.7%
5.7% 5.5% 5.4%
4.6%4.9%
3.5%3.7%
0%
2%
4%
6%
8%
10%
12%
28
15.2%
34.2%
22.5%
19.2%
6.7%2.2%Yield Under 4%Yield 4%-6%Yield 6%-8%Yield 8% -10%Yield 10% -12%Yield Over 12%
Note: 579 CEFs; data as of 9/29/2017 , cefdata.com
Relative UNII for Traditional CEF Municipal Bond Funds
www.CEFadvisors.com 29Source: CEFData.com
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
-5 %
0 %
5 %
10 %
15 %
20 %
25 %
30 %
Nat Muni Bond - Relative UNIIMay 11, 2012 - September 29, 2017
Nat Muni Bond Av Nat Muni Bond
Return of Capital (90 Day) For CEFs
www.CEFadvisors.com 30
Source: CEFData.com
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Main Peer Groups - Historical ROCMay 11, 2012 - September 29, 2017
US Equity Non US Equity Special Equity Taxable Bond
Nat Muni Bond State Muni Bond BDC Debt Focused BDC Equity Focused
Destructive Return of Capital (1YR DRoC)(Traditional)
www.CEFadvisors.com 31
Source: CEFA’s Closed-End Fund Universe 6/30/2015 (www.cefuniverse.com)
Fund Grouping # Funds with Destructive
RoC
% Funds with Destructive
RoC
Average Destructive
RoC %
1Yr NAV TR vs NAV
Yield
3Yr NAV TR vs NAV
Yield
US Equity Funds 2 7% 4% 160% -8%Non-US Equity Funds
4 7% 15% 330% 12%Specialty Equity
Funds 50 44% 49% -92% -87%Equity CEF 61 29% 42% 72% -57%
Taxable Bond Funds22 15% 19% 41% -35%
National Muni Bond Funds 8 9% 2% -91% 2%
State Muni Bond Funds 4 5% 4% -105% 3%
Bond CEF 34 11% 13% -21% -19%Average CEF 95 18% 32% 20% -35%
*Whitepaper
Closed-End FundMarket Price volatility vs. NAV volatility (1 Year)
www.CEFadvisors.com 32
Source: September 29, 2017 – CEFData.com
0.0 5.0 10.0 15.0 20.0 25.0 30.0
U.S. Equity Funds
Non U.S. Equity Funds
Specialty Equity Funds
Taxable Bond Funds
National Muni Bond
Single State Muni Bond
Debt Focused BDC
Equity Focused BDC
Price Volatility NAV Volatility
CEF Press Release SEC Filings Summary(2396 CEF PRs in 3Q17)
www.CEFadvisors.com 33Source: Fund Press Releases / SEC Filings.
Announcement Type 3Q 2017 2016 2015 2014 Avg per Q since 2014
Rights Issue / Offering 5 9 6 9 2
Secondary Offering (Trad CEF) 0 6 2 4 1
Secondary Offering (BDCs) 1 4 16 16 4
Tender Offer 17 17 15 16 6
Distribution Policy Change(TradCEF) 5 6 11 19 3
Distribution Policy Change (BDCs) 0 0 1 1 0
13 Filings (Trad CEF) 65 897 906 - 231
New N-2 Filings 84 97 52 31 21
Updated N-2 Filings 120 120 104 52 31
Investment Manager / Advisor Change 5 35 5 20 5
Portfolio Manager Change 3 39 45 60 13
Leverage Amount / Type Change 34 105 52 47 18
CEF & BDCDividend Increases vs. Decreases
www.CEFadvisors.com 34
Source: Fund Press Releases
Dividend Announcement
3Q 2017Number of
Announcements
3Q 2017Average Change
3Q ‘16 – 2Q ‘17Number of
Announcements
3Q ‘16 – 2Q ‘17Average Change
Dividend Maintains 1183(89.1%) N/A 4835 (89.4%) N/A
Dividend Increases 42 (3.2%) +4.24% 175 (3.2%) +5.56%
Dividend Decreases 102 (7.7%) -5.89% 398 (7.4%) -9.58%
Under 5% Increase 29 (69%) +1.65% 117 (67%) +1.70%
Over 5% Increase 13 (31%) +10.03% 58 (33%) +13.36%
Under 5% Decrease 47 (46%) -1.82% 157 (39%) -2.62%
Over 5% Decrease 55 (54%) -9.38% 241 (61%) -14.12%
4% of announcements “Big Cuts”
3Q 2017 Closed-End FundDividend Increases vs. Decreases
www.CEFadvisors.com 35
Source: Fund Press Releases
0
20
40
60
80
100
120
140
160
U.S. EquityFunds
Non U.S.Equity Funds
SpecialtyEquity Funds
Taxable BondFunds
National MuniBond Funds
Single StateMuni Bond
Funds
Debt FocusedBDC
EquityFocused BDC
Major CEF Groups: Number of dividend decreases / increasesLast Quarter & Previous 1 Year Rolling
Last Q Decreases
Previous 1 Yr Rolling Decreases
Last Q Increases
Previous 1 Yr Rolling Increases
CEF Recent Dividend Changes(Policies NOT Promises)
www.CEFadvisors.com 36
Source: CEFAData.com, as of Sep 29, 2017
3 Year Dividend Growth• 303 Funds (60%) had negative 3 year growth averaging -19.9%• 73 Funds (14%) had positive 3 year growth averaging +18%
2 Year Lookback -- 360 Funds changed their dividend policy in the past 2 years (68% of funds)• 288 Cut (80%) an average of -11% while 72 (20%) increased an average of +8%
• 180 of these funds have “level” or “managed distributions”• 144 of those were cut an average -9%• 36 were increased an average of +7%
1 Year Lookback • 54 increase vs. 202 decreases. 50 Funds had BOTH increases and decreases in the
past year.
CEF & BDCHistorical IPOs (3Q 17)
www.CEFadvisors.com 37
Source: SEC Filings, Press Releases
YTD 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Number of IPOs 8 8 9 15 29 28 26 22 14 3 45
Average Assets
In $ millions$242 $225 $272 $511 $511 $442 $258 $371 $192 $134 $629
Total New CEF IPO
Assets in $ Billions
$1.9B $1.8B $2.4B $7.7B $14.8B $12.4B $6.7B $8.2B $2.7B $.4B $28.3B
10 Year Average: 19 Funds per year, $350MM Ave Fund, $8.5 Billion Per Year
8 10
54 5
5
2
3 23
2 21
23
2 32
3
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
1Q'13
2Q'13
3Q'13
4Q'13
1Q'14
2Q'14
3Q'14
4Q'14
1Q'15
2Q'15
3Q'15
4Q'15
1Q'16
2Q'16
3Q'16
4Q'16
1Q'17
2Q'17
3Q'17
CEF & BDCHistorical IPOs (3Q 17)
www.CEFadvisors.com 38
Source: September 29, 2017 - CEFData.com
Inception Assets (M) | # funds
39
$763
$608$390
$216
$210$163
$130 Debt Focused BDC
Loan Participation
High Yield Bond Funds
Mortgage Bond Funds
Global Income Funds
Prefered Equity Leveraged
Emerging Market Income
Note: Inception Assets in millions ; data as of 9/29/2017 , cefdata.com
2017 IPO Details3Q 2017
www.CEFadvisors.com 40
EV Flt-Rt 2022 Tgt Trm Tr (EFL) – Taxable Bond Funds -IPOed on July 27, 2017
IPO Price: $10.00 IPO Assets: $210MPrice as of 9/29/17: $9.95 Disc/Prm as of 9/29/17 : +1.32%
Nuv Emg Mrkts Debt 2022 Trg (JEMD) – Taxable Bond Funds -IPOed on September 26, 2017
IPO Price: $10.00 IPO Assets: $130MPrice as of 9/29/17 : $10.04 Disc/Prm as of 9/29/17 : +2.14%
XAI Octagon FR & Alt Inc Term (XFLT) – Taxable Bond Funds -IPOed on September 27, 2017
IPO Price: $10.00 IPO Assets: $72.5MPrice as of 9/29/17 : $10.70 Disc/Prm as of 9/29/17 : +9.74%
Source: Fund Press Releases
IPOs during 4Q 2016 – 2Q 2017Current Discount / Premium
www.CEFadvisors.com 41
Data as of September 29, 2017 Source: CEFAData.com
IPO Date Ticker Fund Name Type Current Disc/Prm Current Price IPO Price Curr vs IPOIHIT Invsc Hi Incm 2023 Tgt Trm Fd Traditional 0.30% $10.12 $10.00 101.20%FIV FT Sr Flt Rt 2022 Tgt Trm Fd Traditional -0.92% $9.69 $10.00 96.90%JPT Nuv Pref & Incm 2022 Trm Fd Traditional 0.00% $25.49 $25.00 101.96%
BGIO 2022 Glbl Incm Opp Tr Traditional 0.20% $10.05 $10.00 100.50%JCO Nuveen Cr Opp 2022 Tgt Trm Fd Traditional -1.01% $9.85 $10.00 98.50%CBH AG Convt & Incm 2024 Tgt Trm Traditional 1.02% $9.95 $10.00 99.50%
CGBD TCG BDC BDC 3.75% $18.82 $18.27 103.01%
4Q 2016
1Q 2017
2Q 2017
Closed-End Fund Mergers
www.CEFadvisors.com 42
Source: Fund Press ReleasesReasons to Merge: 1. Reduce expense ratio 2. Increase liquidity 3. Reduce bid/ask spread 4. Improve cost of future leverage
Avg. – 18 per year36 Last 5 Yrs, 10 previous 7 Yrs
0
10
20
30
40
50
60
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Num
ber o
f Clo
sed
-End
Fun
dsClosed-End Funds Merged into Other Closed-End Funds (September 2017)
Closed-End Fund Deaths
www.CEFadvisors.com 43
Source: Fund Press Releases
Causes: Open-ending, liquidation & conversion. (8.8 per year on average)
0
2
4
6
8
10
12
14
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
CEF Funds Open-Ended, Liquidated or Converted to ETF
Converted to ETF
Liquidated
Open-ended
Traditional Closed-End Fund90 Day NAV – Market Price Correlation
www.CEFadvisors.com 44
Source: September 29, 2017 - CEFData.com
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
-20
0
20
40
60
80
100
120
Trad CEFs Groups - 90 Day NAV/Price CorrelationJune 22, 2012 - September 29, 2017
All Trad CEFs All Equity All Bond US Equity Non US Equity
Special Equity Taxable Bond Nat Muni Bond State Muni Bond
Traditional Closed-End FundNAV – Market Price Correlation
www.CEFadvisors.com 45
Source: CEFAData.com
Fund Grouping Correlation 3Q 17
Correlation 2Q 17
Correlation Trend
US Equity Funds 69.73% 78.71% -8.98%
Non-US Equity Funds 81.09% 86.50% -5.41%
Specialty Equity Funds 74.89% 79.97% -5.08%Ave Equity CEF 75.24% 81.06% -5.82%
Taxable Bond Funds 52.73% 62.13% -9.40%
National Muni Bond Funds 48.15% 67.50% -19.35%
State Muni Bond Funds 42.53% 59.05% -16.52%Ave Bond CEF 48.81% 62.87% -14.06%Average CEF 59.42% 70.21% -10.79%
Data as of September 29, 2017
CEF / BDC Index Performance
www.CEFadvisors.com 47Source: CEFAData.com
Fund Grouping 3Q 2017NAV
3Q 2017Mkt Pr
1 Year NAV
1 YearMkt Pr
5 YearNAV
5 Year Mkt Pr
12 Major Sectors Index 2.3% 2.5% 9.9% 13.3% 7.9% 7.6%High Income Index 2.6% 2.9% 11.4% 16.0% 6.5% 6.2%
Tax-Sensitive Income Index 1.4% 1.7% 4.7% 6.7% 3.5% 3.1%60/40 Balanced Index 3.5% 4.1% 13.8% 18.9% 8.5% 8.7%
Global Equity Index 4.7% 5.6% 19.1% 26.1% 9.7% 10.7%Equity Income Index 3.6% 4.2% 13.0% 19.0% 7.7% 8.4%
Taxable Bond and BDC 2.6% 2.4% 9.4% 11.6% 6.4% 5.6%National Municipal Bond 1.9% 1.9% 0.7% -0.9% 5.1% 3.7%
Preferred Equity Index 1.6% 1.7% 10.5% 12.6% 9.6% 9.1%Convertible Bond Index 3.0% 3.8% 12.9% 20.0% 7.5% 7.5%High Yield Bond Index 2.3% 3.6% 11.1% 12.8% 6.9% 4.3%
Sr. Loan Index 1.3% 1.1% 7.5% 10.7% 5.5% 4.4%MLP Index -0.9% -1.1% -1.8% 2.0% -1.3% -2.2%
REIT / Real Asset Index 2.0% 3.5% 5.3% 10.8% 9.5% 9.4%Debt-BDCs Index 2.4% 0.7% 10.5% 12.3% 8.8% 8.1%
Data as of September 29, 2017, Annualized over 1 year
www.CEFadvisors.com 48
CEF Institutional Holdings(Traditional CEFs 3Q 17)
Source: CEFData.com
InstitutionalHoldings Trends
Increase: 212 fundsDecrease: 295 funds
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
0.0 %
5.0 %
10.0 %
15.0 %
20.0 %
25.0 %
30.0 %
35.0 %
40.0 %
45.0 %
Trad CEFs Groups - % Shares Owned by InstitutionsJanuary 18, 2013 - September 29, 2017
All Trad CEFs All Equity All Bond US Equity Non US Equity
Special Equity Taxable Bond Nat Muni Bond State Muni Bond
www.CEFadvisors.com 49
BDC Institutional OwnershipLa
rges
t Ins
titut
iona
l Hol
der (
%)
Note: Data as of 9/29/2017 , cefdata.com
BDC Shares Owned by Institutions (%)Approved Below NAV Offering (3Q)
0
5
10
15
20
25
30
0 10 20 30 40 50 60 70
CEF/BDC Activist / Institutional Investors
www.CEFadvisors.com 50
Source: CEFAData.com
Activist: 1. Ancora Advisors2. Bull Dog Investors3. Special Opportunities Fund
(SPE -- Bulldog)4. City of London5. Ironsides Partners6. Karpus Investment Management7. Western Investment8. Elliott Associates (BDCs)9. Wynnefield Capital (BDCs)
Followers:1. Punch & Associates Investment
Management2. Relative Value Partners3. 1607 Capital Partners LLC4. Rivernorth Capital Management5. Saba Capital Management6. SIT Investment Associates7. DG Capital Management (BDCs)8. Sims Capital Management (BDCs)
Total Assets at work 12/31/16 - $1.5 Billion Activist // $6.5 Billion Followers & Activist
Closed-End Fund Corporate Actions / Activist Update
3Q 2017
www.CEFadvisors.com 51Source: SEC Filings, Press Releases
Month Filed
Filing Closed-End Fund/BDC Investor/Who Notes
Sep 13D/ABR Dbt Stgs Fd (DSU)
Saba 13.53%Discussion regarding trading
on discount
Sep 13D/A Lzrd Glbl Tot Rtn & Incm Fd (LGI) Bulldog Dec(5.31%)
Sep 13D/A China Fund (CHN) City of London 24.9%Investment Agrmnt
Termination - proposal
Sep 13G/A Fed Prmr Imd Muni Incm Fd (FPT) Karpus 8.69%Conversion from Active to
Passive
Sep Proxy Highland Floating Rate Opportunities Fund
Public Proposal of OEF to CEF conversion
Sep 13D/A Madison Stgc Sctr Prm Fd (MSP) Karpus 24.1%Fund reorganization of MSP
into MCN not approved
Source: SEC Filings, Press Releases
Closed-End Fund Corporate Actions / Activist Update
www.CEFadvisors.com 52
Source: SEC Filings, Press Releases
Month Filed
Filing Closed-End Fund/BDC Investor/Who Notes
August Tender AC Convt Sec & Incm Fd (AVK)AC Convt Sec & Incm Fd II (AGC)
Western Investement Up to 15% @ 98% of NAV
August 13D/A Abd Singapore Fd (SGF) Bulldog Inc (5.09%)Self-Tender proposition
August Repurchase
Boulder Growth & Incm Fd (BIF) Public @ Discount to NAV
July 13G Capitala Finance Corp (Preferred) Karpus 12.72% New
July 13D Clough Glbl Eq Fd (GLQ) Bulldog 6.34%Tender Offer
July 13G Oxford Lane Cap Corp (Preferred)
Karpus 19.12% New
www.CEFadvisors.com 53
CEF Activist Holdings(Traditional CEFs 3Q 17)
Source: CEFData.com
Activist Holdings Trends
Increase: 79 fundsDecrease: 99 funds
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
0.0 %
5.0 %
10.0 %
15.0 %
20.0 %
25.0 %
30.0 %
35.0 %
40.0 %
Trad CEFs Groups - % Shares Owned byActivistsJanuary 25, 2013 - September 29, 2017
All Trad CEFs All Equity All Bond US Equity Non US Equity
Special Equity Taxable Bond Nat Muni Bond State Muni Bond
www.CEFadvisors.com 54
Prem
ium
/ D
isco
unt (
%)
Note: Data as of 9/29/2017 , cefdata.com
Shares owned by Activists / Followers(%)
-25
-20
-15
-10
-5
0
5
10
15
5 15 25 35 45 55 65 75
55
$1,499
$1,094
$553
$376
$225$89 $31 Non U.S. Equity
BDCTaxable BondU.S. EquityHybrid / BalancedSpecialty EquityNational Muni Bond
Note: millions of dollars, data as of 9/29/2017, cefdata.com
BDC Debt $1,058Asian Equity $1,023General Equity $376US Government Bond $297Hybrid / Balanced $225
Top 5 Peer Groups
CEF Activist Ownership $3,866
56
$6,344
$4,345$3,802
$3,161
$1,534
$1,270
$578 $517 Taxable BondNon U.S. EquitySpecialty EquityBDCU.S. EquityNational Muni BondSingle State Muni BondHybrid / Balanced
Note: millions of dollars, data as of 9/29/2017, cefdata.com
BDC Debt $3,021Asian Equity $2,290High Yield Bond $1,482Covered Call $1,474General Equity $1,244
Top 5 Peer Groups
CEF Activist Ownership $21,550
CEFA’s Outlook for 4Q and 2018
www.CEFadvisors.com 57
• US Equity Funds• Non-US Equity Funds• Specialty Equity (Sector) Funds
• Taxable Bond Funds
• National Municipal Bond (Tax-Free) Funds• State Specific Municipal Bond (Tax-Free) Funds
• Debt-Focused Business Development Companies (BDCs)• Equity-Focused Business Development Companies (BDCs)
• Sustainable CEF Portfolio Distribution Yields, Beta, Correlations, Duration and After-Tax Income, Gross Asset Exposure, Leverage
Possible Trump Impact to BDCs and CEFs(Sectors / DOL / Trends and Products)
www.CEFadvisors.com 58
Source: CEFAData.com
CEF / BDC - Sectors• Municipal Bond CEFs / QDI• MLP / Infrastructure• “Typical” Equity Funds• Duration Bonds/Preferred• Sr. Loans / BDCs
Products of BDCs/CEFs• Index Inclusion ?• Acquired Fund Fees• Banks competing with BDCs?• ETFs, CEFs, OEFs, A-ETFs
Market Trends• Taxes• Regulations• Market Risk• Interest Rates• Cost & Type of Leverage
DOL• CEF / BDC IPOs & Secondary’s • CEF Products – UITs in IRAs?• Pushed back – How far? Ever?• Fiduciary vs. Suitability• Kill or fix BDC/CEFs IPOs ?
www.CEFadvisors.com 59
Closed-End Funds & BDCs in a Rising Rate Environment
(March 2004 to September 2007)
Full article on our blog:
www.CEF-Blog.com
CEFData.com
www.CEFadvisors.com60
CEFDATA.COM – Data Updates Daily and Live with Analysis Updates Free Public CEF/BDC Profiles & 33 CEF/BDC Indexes Watchlists, Models, Portfolio, Screener, PR/News ad SEC Filings Database
Show how portfolio/model changes with swaps or allocation changes View and Summary Reports
Fund Sponsor Modules Compare a Fund to Dynamic Peer Groups and Selected Peers
Expecting to add 1-2 modules per month: List on www.CEFdata.com
30 Day Free Trial and free CEFU/DA while in development with guaranteed renewals at 25% off through October 31, 2018 for Q Webinar Attendees (Promo code CEFD2017) that sign up by November 30, 2017.
Pricing per Quarter is $1K (Individual) $2K (Small RIA/FA) $3K Large RIA/Hedge Fund, $4K Fund Sponsor/Product Sponsor. We always offer prorated refunds and include 30 minutes per quarter free consulting time with John Cole Scott for paid subscribers.
CEF Advisors Links
www.CEFadvisors.com 61
• CEF Advisors’ Website: www.CEFadvisors.com• CEF/BDC Index Data: www.CEFdata.com/cefaindex• CEFA’s Blog: www.CEF-Blog.com /
CEF/BDC Research Sites: www.BDCUniverse.net -- www.CEFdata.com
• Published Articles• Seeking Alpha: http://seekingalpha.com/author/john-cole-scott/articles• WealthManagement.com: http://wealthmanagement.com/author/john-scott
• Vimeo Channel: https://vimeo.com/johncolescott/videos
• Weekly CEF Data (14 Day Trial), Daily News Alerts (10 Day Trial), www.CEFUniverse.com
• CEF Universe Data Definitions: http://www.cefadvisors.com/Download/CEFUDataDefinitions.pdf
• CEFA’s Form ADV Part 2A and 2Bhttp://www.cefadvisors.com/Download/ADV-II-Form.pdf
62
For Your InformationCEF Resources
CEF/BDC Fund Profiles: www.cefdata.comCEFAnalyzer LLC: http://CEFanalyzer.comThe Closed-End Fund Association: www.Closed-EndFunds.comCEF Connect (Nuveen Sponsored): www.CEFconnect.comMorningtar's CEF Site:http://www.morningstar.com/Cover/CEF-Closed-End-Funds.aspxInvestment Company Institute: http://www.ici.org/research#fact_booksCEFNetwork (Pristine Advisers): www.CEFnetwork.comCEF Insight (Activist Info from AST Fund Solutions): www.CEFinsight.comCapital Link's CEF Portal: http://cef.capitallink.com/Morningstar Discussion Board:http://socialize.morningstar.com/NewSocialize/forums/100000006.aspxYahoo CEF Discussion Board: https://groups.yahoo.com/neo/groups/closedendfunds2/infoThe CEF Network on LinkedIN: www.CEF-Network.comSeeking Alpha: http://seekingalpha.com/articles?filters=closed-end-funds
More Useful Links at: www.cefadvisors.com/investRes.html
View online: www.cefdata.com/portfoliocomp -- Disclosure: See full portfolio disclosures at the end of this presentation
Current CEFA Portfolio Modes
www.CEFAdvisors.com
Disclosure: See full portfolio disclosures at the end of this presentation
67
Speaker’s Biography
John Cole Scott, CFSEXPERIENCECIO of Registered Investment Advisor Focused Exclusively on CEFs & BDCs since 2001
EDUCATIONCollege of William & MaryBachelor of Science in Psychology 2000
John Cole Scott, CFSChief Investment Officer of Closed-End Fund Advisors
Mr. Scott has worked at Closed-End Fund Advisors since 2001. He holds theFINRA 66 License and the Certified Fund Specialist designation (CFS). He is agraduate of The College of William and Mary and has been quoted andinterviewed widely in the financial press and presented at conferences and forinvestment groups on more than 50 occasions.
In 2008 John founded CEFA's Closed-End Fund Universe, a data servicecovering all US listed closed-end funds and BDCs. Currently supported by aninternal 9 member analyst team with a data manager/ programmer coveringthe 575+ ticker universe of CEFs/BDCs. They regularly do consulting andprojects for CEF/BDC Sponsors, Hedge Funds and Institutional Investors.
Portfolio Consultant with over a quarter billion deposits into a fund focused onBDCs with a fund sponsor partner. He developed 33 CEF/BDC based indexes; 9diversified portfolio objective, 9 Equity and 15 Bond sector. John is a pastboard member of The Richmond Association for Business Economics (RABE),and serves as Assistant Treasurer and on the Investment Committee for TheNew York State Society of The Cincinnati. Board member and Finance &Investment Committees for The William & Mary National Alumni Board.
www.CEFadvisors.com
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. Data comes from our CEF Universe service dated September 30, 2017 unless otherwise noted.
www.CEFadvisors.com 68
Closed-End Fund Advisors, Inc
7204 Glen Forest Drive, Suite #105Richmond, Virginia 23226 U.S.A(800) 356-3508 / (804) 288-2482
www.CEFData.com
Thank You For Attending
Questions?