The Chemist’s Closed-End Fund Report, June 2020: Valuations And Sentiment Improving

The Chemist’s Closed-End Fund Report, June 2020: Valuations And Sentiment Improving

Author’s note: This article was released to CEF/ETF Income Laboratory members on June 16, 2020. Please check latest data before investing.

Chemist’s Closed-End Fund Report

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, “deviation” refers to the deviation 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 earnings coverage numbers as well. Note a coverage of “0.00%” indicates that earnings numbers were not provided by CEFConnect (usually for MLP funds).

Key to table headings:

P/D = premium/discount

Z = 1-year z-score

Dev = deviation

Lev = leverage

BE = baseline expense

Cov = coverage

Data were taken from the close of June 15, 2020.

1. Top 10 largest premia and top 10 widest discounts

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

Top 10 largest premia equity:

TickerFundCategoryP/DYZCov1Y NAVDevLevBE
(GUT)Gabelli Utility TrustSector Equity87.16%8.08%2.71%-4.05%32.08%32%1.76%
(DNP)DNP Select IncomeSector Equity25.39%6.99%1.325%-1.67%4.79%27%1.01%
(FGB)First Trust Spec Finance & Fincl OppSector Equity21.32%15.43%1.633%-43.42%15.28%37%1.60%
(PGP)PIMCO Global StocksPLUS & IncomeGlobal Allocation13.16%13.61%-1.7113%-12.89%-8.96%39%1.54%
(ERH)Wells Fargo Util & High InU.S. Allocation12.97%7.30%1.440%1.69%7.42%17%1.04%
(BTO)JHancock Financial OpportunitiesSector Equity12.50%9.01%3.17%-27.37%12.86%24%1.62%
(CRF)Cornerstone Total Return FundU.S. Equity11.55%22.20%1.23%10.49%6.26%10%1.17%
(RFI)Cohen & Steers Total ReturnReal Estate11.13%6.81%2.329%-3.96%9.30%2%0.86%
(GAB)Gabelli EquityU.S. Equity9.53%11.86%0.9-1%-5.81%3.63%23%1.45%
(CLM)Cornerstone Strategic ValueU.S. Equity9.33%22.30%0.92%11.98%4.61%0%1.13%

Top 10 widest discounts equity:

TickerFundCategoryP/DYZCov1Y NAVDevLevBE
(NHF)NexPoint Strategic Opportunities FundU.S. Allocation-37.74%10.92%-1.161%-17.36%-14.20%29%2.03%
(OTCPK:FXBY)FOXBY CORP.U.S. Equity-35.93%0.56%-0.7#DIV/0!-3.55%-3.14%20%2.42%
(HGLB)Highland Global Allocation FundGlobal Allocation-34.73%15.27%-0.844%-18.44%-7.36%7%1.07%
(RIF)RMR Real Estate Income FundReal Estate-31.70%10.95%-2.8-7%-27.55%-10.73%37%1.67%
(BANX)STONECASTLE FINANCIAL CORP.Sector Equity-25.67%-1.5#DIV/0!6.41%-19.62%0%2.96%
(SZC)Cushing® NextGen Infrastructure IncomeSector Equity-24.18%8.11%-1.443%-31.22%-14.69%12%1.89%
(TYG)Tortoise Energy Infrastructure Corp.MLPs-24.13%0.00%-2.052%-70.72%-16.49%67%3.64%
(SMM)Salient Midstream & MLP FundMLPs-23.98%5.53%-1.8101%-38.04%-6.75%27%2.24%
(KMF)Kayne Anderson Midstream Energy FundMLPs-22.92%0.00%-1.975%-47.18%-7.51%49%2.10%
(CUBA)Herzfeld Caribbean BasinU.S. Equity-22.48%0.00%-2.5-4%-23.28%-6.24%0%2.65%

Top 10 largest premia fixed income:

TickerFundCategoryP/DYZCov1Y NAVDevLevBE
(OXLC)Oxford Lane Capital Corp.Senior Loans34.96%39.51%-1.566%-3.48%19.50%32%10.72%
(PTY)PIMCO Corporate & Income Opportunity FdInvestment Grade30.15%10.03%0.683%-8.90%3.16%27%0.80%
(PCN)PIMCO Corporate & Income StrgyInvestment Grade27.29%8.61%0.380%-8.29%1.99%31%0.94%
(PCQ)PIMCO CA Municipal IncomeCalifornia Munis16.72%4.87%-1.580%2.91%-14.45%48%1.15%
(PFD)Flaherty & Crumrine Preferred IncomePreferreds13.47%6.34%1.393%2.41%5.70%35%1.29%
(PML)PIMCO Municipal Income IINational Munis12.18%5.32%-0.992%0.33%-6.94%47%1.06%
(PDI)PIMCO Dynamic Income FundMultisector Income11.98%10.33%-0.7127%-12.04%-4.25%44%1.89%
(PCM)PCM FundLimited Duration11.87%10.17%0.186%-9.92%0.45%43%1.43%
(EDF)Stone Harbor Emerg. Mkts Income FundEmerging Market Income10.70%13.17%-2.178%-20.67%-27.46%8%1.59%
(RCS)PIMCO Strategic Income FundInvestment Grade10.00%11.30%-1.8114%-8.05%-19.40%49%0.98%

Top 10 widest discounts fixed income:

TickerFundCategoryP/DYZCov1Y NAVDevLevBE
(HFRO)Highland Floating Rate Opportunities FdSenior Loans-31.51%11.13%-1.674%-10.62%-16.53%39%1.80%
(VCIF)Vertical Capital Income FundSenior Loans-21.86%3.13%-0.297%2.92%-1.37%8%2.88%
(FAX)Aberdeen Asia-Pacific Income Fund Inc.Global Income-19.54%9.02%-1.855%-1.42%-5.31%34%1.22%
(EDD)Morgan Stanley Emrgng Mkts Domestic DebtEmerging Market Income-18.49%8.45%-1.631%-0.96%-6.28%26%1.67%
(AFT)Apollo Senior Floating Rate FundSenior Loans-16.90%6.40%-1.7149%-8.01%-4.65%38%2.28%
(NXJ)Nuveen NJ Quality Muni IncSingle-state Munis-16.86%4.67%-1.8106%1.41%-4.05%39%0.95%
(VTA)Invesco Dynamic Credit OppSenior Loans-16.54%10.10%-1.496%-12.00%-4.35%39%2.18%
(GIM)Templeton Global IncomeGlobal Income-16.41%3.08%-1.7216%-5.56%-5.22%0%0.67%
(ARDC)Ares Dynamic Credit Allocation FundSenior Loans-16.30%9.68%-1.7122%-14.62%-4.70%33%3.25%
(NJV)Nuveen New Jersey Municipal Value CommonSingle-state Munis-16.23%2.96%-2.0114%-0.10%-4.23%7%0.93%

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

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:

TickerFundCategoryZP/DYCov1Y NAVDevLevBE
(BTO)JHancock Financial OpportunitiesSector Equity3.112.50%9.01%7%-27.37%12.86%24%1.62%
(GUT)Gabelli Utility TrustSector Equity2.787.16%8.08%1%-4.05%32.08%32%1.76%
(UTG)Reaves Utility IncomeSector Equity2.49.14%6.48%20%-2.18%7.54%23%1.17%
(BME)BlackRock Health SciencesSector Equity2.35.86%5.72%1%22.13%4.35%0%1.09%
(RFI)Cohen & Steers Total ReturnReal Estate2.311.13%6.81%29%-3.96%9.30%2%0.86%
(THW)Tekla World Healthcare FundSector Equity1.81.37%9.97%7%22.69%6.05%22%1.60%
(GLU)Gabelli Global Utility & IncomeSector Equity1.80.32%7.42%-26%-10.66%5.25%43%1.33%
(RGT)Royce Global ValueTrust FundGlobal Equity1.6-9.86%0.54%-1%6.32%4.25%6%1.01%
(FGB)First Trust Spec Finance & Fincl OppSector Equity1.621.32%15.43%33%-43.42%15.28%37%1.60%
(STK)Columbia Seligman Premium Technology GrCovered Call1.57.05%8.67%-1%16.26%4.34%0%1.15%

Top 10 lowest z-scores equity:

TickerFundCategoryZP/DYCov1Y NAVDevLevBE
(RIF)RMR Real Estate Income FundReal Estate-2.8-31.70%10.95%-7%-27.55%-10.73%37%1.67%
(CUBA)Herzfeld Caribbean BasinU.S. Equity-2.5-22.48%15.45%-4%-23.28%-6.24%0%2.65%
(GPM)Guggenheim Enhanced Equity Income FundCovered Call-2.5-10.20%8.94%1%-9.24%-10.31%38%1.38%
(TTP)Tortoise Pipeline & EnergyMLPs-2.3-22.28%4.09%616%-65.36%-9.90%55%1.91%
(CHN)China FundAsia Equity-2.2-17.07%0.63%4%22.25%-4.80%1%1.41%
(TYG)Tortoise Energy Infrastructure Corp.MLPs-2.0-24.13%0.00%52%-70.72%-16.49%67%3.64%
(NTG)Tortoise Midstream Energy FundMLPs-2.0-20.41%0.00%54%-80.09%-12.23%74%1.70%
(FDEU)First Trust Dynamic Europe Equity IncomeGlobal Equity-2.0-13.88%7.01%55%-13.50%-5.67%33%1.69%
(KMF)Kayne Anderson Midstream Energy FundMLPs-1.9-22.92%7.20%75%-47.18%-7.51%49%2.10%
(TWN)Taiwan FundAsia Equity-1.9-18.86%3.30%-1%36.22%-4.18%0%1.73%

Top 10 highest z-scores fixed income:

TickerFundCategoryZP/DYCov1Y NAVDevLevBE
(EGF)BlackRock Enhanced GovernmentInvestment Grade2.9-0.50%3.66%71%3.70%3.31%20%1.15%
(BKT)BlackRock IncomeInvestment Grade2.4-1.88%6.65%61%6.19%3.25%30%0.94%
(BBN)BlackRock Taxable Municipal Bond TrustTaxable Munis2.23.76%5.43%107%3.26%5.70%38%0.93%
(BHK)BlackRock Core BondInvestment Grade1.8-2.70%5.28%79%11.94%3.34%24%1.20%
(PIM)Putnam Master Interm IncomeInvestment Grade1.72.10%8.14%54%-3.63%5.12%0%1.02%
(PPT)Putnam Premier IncomeGlobal Income1.53.16%8.52%62%-4.09%4.67%0%0.91%
(NYSE:FFC)Flah&Crum Preferred SecuritiesPreferreds1.49.04%7.02%216%2.66%5.20%35%0.87%
(IHIT)Invesco High Income 2023 Target TermHigh Yield1.43.23%7.47%94%-24.77%3.81%31%1.10%
(DFP)Flah & Crum Dynamic Pref & Income FundPreferreds1.44.44%7.26%91%2.60%4.11%36%1.06%
(BQH)BlackRock NY Municipal BondNew York Munis1.4-4.04%4.17%93%2.62%3.18%41%1.56%

Top 10 lowest z-scores fixed income:

TickerFundCategoryZP/DYCov1Y NAVDevLevBE
(VCF)Delaware Inv CO Municipal IncomeSingle-state Munis-2.6-7.38%3.50%115%0.20%-4.55%30%1.00%
(EDF)Stone Harbor Emerg. Mkts Income FundEmerging Market Income-2.110.70%13.17%78%-20.67%-27.46%8%1.59%
(NJV)Nuveen New Jersey Municipal Value CommonSingle-state Munis-2.0-16.23%2.96%114%-0.10%-4.23%7%0.93%
(RCS)PIMCO Strategic Income FundInvestment Grade-1.810.00%11.30%114%-8.05%-19.40%49%0.98%
(NXJ)Nuveen NJ Quality Muni Inc.Single-state Munis-1.8-16.86%4.67%106%1.41%-4.05%39%0.95%
(CHY)Calamos Convertible & High Income FundConvertibles-1.8-8.75%9.33%53%16.54%-6.02%32%1.85%
(FAX)Aberdeen Asia-Pacific Income Fund Inc.Global Income-1.8-19.54%9.02%55%-1.42%-5.31%34%1.22%
(NYSE:NCB)Nuveen CA Municipal Value 2California Munis-1.7-12.63%2.92%119%3.64%-8.67%9%0.71%
(BSL)Blackstone/GSO Senior Floating Rate TrmSenior Loans-1.7-12.29%8.75%112%-9.08%-8.98%36%1.83%
(AFT)Apollo Senior Floating Rate FundSenior Loans-1.7-16.90%6.40%149%-8.01%-4.65%38%2.28%

3. Top 10 highest yielding CEFs

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:

TickerFundCategoryYP/DZCov1Y NAVDevLevBE
(IIF)Morgan Stanley India InvestmentAsia Equity29.89%-14.27%0.439%-27.73%0.72%0%1.28%
(CLM)Cornerstone Strategic ValueU.S. Equity22.30%9.33%0.92%11.98%4.61%0%1.13%
(CRF)Cornerstone Total Return FundU.S. Equity22.20%11.55%1.23%10.49%6.26%10%1.17%
(NRGX)PIMCO Energy & Tactical Credit OppsGlobal Allocation20.97%-14.61%-1.815%-46.03%-9.31%0%2.29%
(GGN)GAMCO Global Gold Natural Resources&IncSector Equity17.96%-12.56%-1.9-20%7.74%-11.64%13%1.37%
(TPZ)Tortoise Power and Energy InfrastructureU.S. Allocation15.79%-21.00%-1.5153%-33.56%-9.33%40%1.76%
(CUBA)Herzfeld Caribbean BasinU.S. Equity15.45%-22.48%-2.5-4%-23.28%-6.24%0%2.65%
(FGB)First Trust Spec Finance & Fincl OppSector Equity15.43%21.32%1.633%-43.42%15.28%37%1.60%
(HGLB)Highland Global Allocation FundGlobal Allocation15.27%-34.73%-0.844%-18.44%-7.36%7%1.07%
(TDF)Templeton DragonAsia Equity14.83%-16.24%-1.71%16.49%-3.33%0%1.34%

Top 10 highest yields fixed income:

TickerFundCategoryYP/DZCov1Y NAVDevLevBE
(OXLC)Oxford Lane Capital Corp.Senior Loans39.51%34.96%-1.566%-3.48%19.50%32%10.72%
(OCCI)OFS Credit Company, Inc.Senior Loans19.64%6.33%-0.825%-16.40%13.12%33%7.37%
(JQC)Nuveen Credit Strategies Income FundSenior Loans17.39%-11.44%-0.538%-7.67%-1.57%34%1.34%
(ACP)Aberdeen Income Credit Strategies FundSenior Loans16.57%-9.92%-0.965%-16.89%-3.93%36%2.28%
(XFLT)XAI Octagon FR & Alt Income Term TrustSenior Loans16.16%-3.93%-0.978%-33.00%-6.64%34%3.27%
(OPP)RiverNorth/DoubleLine Strategic Opp FundHigh Yield15.19%-5.35%-0.342%-8.47%-0.94%27%1.92%
(RSF)RiverNorth Marketplace Lending Corp.High Yield14.35%-15.03%-1.30%0.00%-4.38%28%5.18%
(RA)Brookfield Real Assets Income Fund Inc.High Yield14.16%-12.01%-1.037%-9.28%-4.49%26%1.61%
(PHK)PIMCO High IncomeMultisector Income13.81%9.25%-1.373%-13.17%-10.60%35%0.91%
(FCO)Aberdeen Global Income Fund, Inc.Global Income13.48%-5.30%-1.042%-8.18%-5.75%34%1.96%

4. Top 10 best combination of yield and discount

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 “DxY” metric, the better.

Top 10 best DxY equity:

TickerFundCategoryP/DYZCov1Y NAVDxYDevLevBE
(HGLB)Highland Global Allocation FundGlobal Allocation-34.73%15.27%-0.844%-18.44%-5.30-7.36%7%1.07%
(IIF)Morgan Stanley India InvestmentAsia Equity-14.27%29.89%0.439%-27.73%-4.260.72%0%1.28%
(NHF)NexPoint Strategic Opportunities FundU.S. Allocation-37.74%10.92%-1.161%-17.36%-4.12-14.20%29%2.03%
(CUBA)Herzfeld Caribbean BasinU.S. Equity-22.48%15.45%-2.5-4%-23.28%-3.47-6.24%0%2.65%
(RIF)RMR Real Estate Income FundReal Estate-31.70%10.95%-2.8-7%-27.55%-3.47-10.73%37%1.67%
(TPZ)Tortoise Power and Energy InfrastructureU.S. Allocation-21.00%15.79%-1.5153%-33.56%-3.32-9.33%40%1.76%
(NRGX)PIMCO Energy & Tactical Credit OppsGlobal Allocation-14.61%20.97%-1.815%-46.03%-3.06-9.31%0%2.29%
(TEAF)Tortoise Essential Assets Income TermSector Equity-21.92%11.35%-1.427%-16.79%-2.49-9.50%0%1.26%
(TDF)Templeton DragonAsia Equity-16.24%14.83%-1.71%16.49%-2.41-3.33%0%1.34%
(CTR)ClearBridge MLP and Midstream TRMLPs-21.42%11.19%-1.7-22%-61.68%-2.40-7.90%53%1.83%

Top 10 best DxY fixed income:

TickerFundCategoryP/DYZCov1Y NAVDxYDevLevBE
(HFRO)Highland Floating Rate Opportunities FdSenior Loans-31.51%11.13%-1.674%-10.62%-3.51-16.53%39%1.80%
(RSF)RiverNorth Marketplace Lending Corp.High Yield-15.03%14.35%-1.30%0.00%-2.16-4.38%28%5.18%
(JQC)Nuveen Credit Strategies Income FundSenior Loans-11.44%17.39%-0.538%-7.67%-1.99-1.57%34%1.34%
(FEO)First Trust/Aberdeen Emerging OppEmerging Market Income-14.81%11.94%-1.117%-2.94%-1.77-3.41%8%1.73%
(FAX)Aberdeen Asia-Pacific Income Fund Inc.Global Income-19.54%9.02%-1.855%-1.42%-1.76-5.31%34%1.22%
(RA)Brookfield Real Assets Income Fund Inc.High Yield-12.01%14.16%-1.037%-9.28%-1.70-4.49%26%1.61%
(VTA)Invesco Dynamic Credit OppSenior Loans-16.54%10.10%-1.496%-12.00%-1.67-4.35%39%2.18%
(ACP)Aberdeen Income Credit Strategies FundSenior Loans-9.92%16.57%-0.965%-16.89%-1.64-3.93%36%2.28%
(ARDC)Ares Dynamic Credit Allocation FundSenior Loans-16.30%9.68%-1.7122%-14.62%-1.58-4.70%33%3.25%
(EDD)Morgan Stanley Emrgng Mkts Domestic DebtEmerging Market Income-18.49%8.45%-1.631%-0.96%-1.56-6.28%26%1.67%

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 “DxYxZ” metric, the better.

Top 10 best DxYxZ equity:

TickerFundCategoryP/DYZCov1Y NAVDxYxZDevLevBE
(RIF)RMR Real Estate Income FundReal Estate-31.70%10.95%-2.8-7%-27.55%9.89-10.73%37%1.67%
(CUBA)Herzfeld Caribbean BasinU.S. Equity-22.48%15.45%-2.5-4%-23.28%8.82-6.24%0%2.65%
(NRGX)PIMCO Energy & Tactical Credit OppsGlobal Allocation-14.61%20.97%-1.815%-46.03%5.42-9.31%0%2.29%
(TPZ)Tortoise Power and Energy InfrastructureU.S. Allocation-21.00%15.79%-1.5153%-33.56%5.11-9.33%40%1.76%
(NHF)NexPoint Strategic Opportunities FundU.S. Allocation-37.74%10.92%-1.161%-17.36%4.62-14.20%29%2.03%
(GGN)GAMCO Global Gold Natural Resources&IncSector Equity-12.56%17.96%-1.9-20%7.74%4.22-11.64%13%1.37%
(NYSE:HGLB)Highland Global Allocation FundGlobal Allocation-34.73%15.27%-0.844%-18.44%4.19-7.36%7%1.07%
(TDF)Templeton DragonAsia Equity-16.24%14.83%-1.71%16.49%4.07-3.33%0%1.34%
(CTR)ClearBridge MLP and Midstream TRMLPs-21.42%11.19%-1.7-22%-61.68%4.00-7.90%53%1.83%
(TEAF)Tortoise Essential Assets Income TermSector Equity-21.92%11.35%-1.427%-16.79%3.46-9.50%0%1.26%

Top 10 best DxYxZ fixed income:

TickerFundCategoryP/DYZCov1Y NAVD x Y x ZDevLevBE
(HFRO)Highland Floating Rate Opportunities FdSenior Loans-31.51%11.13%-1.674%-10.62%5.61-16.53%39%1.80%
(FAX)Aberdeen Asia-Pacific Income Fund IncGlobal Income-19.54%9.02%-1.855%-1.42%3.12-5.31%34%1.22%
(RSF)RiverNorth Marketplace Lending CorpHigh Yield-15.03%14.35%-1.30%0.00%2.83-4.38%28%5.18%
(ARDC)Ares Dynamic Credit Allocation FundSenior Loans-16.30%9.68%-1.7122%-14.62%2.62-4.70%33%3.25%
(EDD)Morgan Stanley Emrgng Mkts Domestic DebtEmerging Market Income-18.49%8.45%-1.631%-0.96%2.48-6.28%26%1.67%
(VTA)Invesco Dynamic Credit OppSenior Loans-16.54%10.10%-1.496%-12.00%2.34-4.35%39%2.18%
(DHY)Credit Suisse High Yield Bond FundHigh Yield-13.20%10.05%-1.795%-4.70%2.27-8.37%31%1.37%
(DHF)BNY Mellon High Yield Strategies FundHigh Yield-13.36%9.96%-1.694%-3.12%2.10-4.23%28%1.29%
(JSD)Nuveen Short Duration Credit Opps FundSenior Loans-14.67%8.86%-1.5104%-14.51%1.98-4.07%33%1.46%
(PHT)Pioneer High IncomeHigh Yield-12.29%10.83%-1.5100%-8.96%1.97-4.23%33%0.98%

6. Summary statistics

The average premium/discount of all the CEFs in the database is -7.82%, a 113 bps increase from -8.95% in the previous month. Equity CEF discounts average -9.79%, while fixed income CEF discounts average -6.47%.

The average distribution yield of all the CEFs in the database is 7.32%, down from 8.15% the month prior. Equity CEFs average 8.52% yield, while fixed income CEFs average 6.69% yield.

The average 1-year z-score of all the CEFs in the database is -0.63, an increase from -1.01 a month prior. Equity CEFs have an average z-score of -0.63, while fixed income CEFs have an average z-score of -0.55.


Sentiment continues to improve in CEFs as the general markets rebound from their March lows. According to Lipper’s The Month In Closed-End Funds: May 2020, equity CEFs put in a +4.44% NAV return in May while fixed income CEFs put in a +4.69% NAV return for the month (best month since September 2009!). This compares to US stocks (SPY) return of +4.76%, international stocks (ACWX) return of +4.59%, corporate bonds (LQD) return of +2.46% and high-yield bonds (JNK) return of +3.53% for the month.

The markets appeared to have stalled somewhat over the last few days with the S&P 500 falling by -5.76% in a single day on June 11. CNN Money’s “Fear & Greed Index” (note: not political) is back into “Neutral” territory based on 7 quantitative indicators.

(Source: CNN Money)

Nevertheless, sentiment in CEFs has still improved compared to one month ago as based on premium/discount valuation. The overall average discount for all CEFs is -7.82%, a 113 bps increase from -8.95% in the previous month. The median discount for all CEFs is -9.38%, a 57 bps increase from the median of -9.95% the prior month.

Equity CEF average discounts contracted from -10.79% to -9.79%, while fixed income average discounts contracted from -7.70% to -6.47%. 1-year z-scores improved from -1.01 to -0.63, indicating continual improved sentiment.

Our data is also corroborated by RiverNorth which shows an average discount of -8.07% as of June 12, 2020. Importantly, their data also shows that CEF discounts have been wider only 12% of the time from 1996 to date, meaning that discounts are still wider than the historical average (last month the corresponding value was 5%).

There’s really not much else to say about the broader CEF market to be honest! (Although there’s a lot of action going on at the individual fund level, as we discussed in the latest Weekly CEF Roundup) I suspect most of us have been enjoying the recovery in our portfolio values. I did not personally buy any CEF last week which is why I paused the Weekly Flash memo, partly because I was feeling a bit under the weather, but also partly because the markets were rallying hard. I prefer to buy on weakness, but that’s just my own preference! Overall, I don’t think it makes a huge difference though for the long-term income investor.

While we’re no longer in “blood in the streets” territory, I continue to be constructive on CEF valuations at this time. Remember, wide CEF discounts are a buy signal for the long-term value investor. By buying CEFs at a discount, you’re effectively buying more bang for every buck. Moreover, you’re also getting a higher yield at market price compared to the distribution rate that the fund is actually paying on its NAV.

At the same time, we continue to advocate adding in phases for those who do want to buy, especially on any dips. Having consistency and discipline is very important for the long-term income investor. This is because we don’t know whether markets will go lower from here, as the current talk around the town is the fear of a “second wave” of COVID infections followed by a second shutdown.

Nevertheless, our portfolios indicate that despite the recent rally, many funds are still “buy” rated and attractively valued from a premium/discount perspective, compared to earlier this year. For example, our Income Generator portfolio at the end of January had zero “buy” rated funds, 3 funds rated “hold/sell” and the remainder as “hold.” Today, the Income Generator portfolio has seven “buy” rated funds and none that are rated as “hold/sell.”

Similarly, our Tactical Income-100 portfolio showed only 2 “buys” at the end of January, with 2 funds rated “hold/sell” and the remainder as “hold.” Today, 11 funds in the Tactical Income-100 portfolio are rated “buy” and only 1 fund has a “hold/sell” rating.

Newer members should definitely check out our report from last month where we go into more detail regarding our portfolio strategy, especially with regards on not relying on market timing and the importance of staying the course: The Chemist’s Closed-End Fund Report, May 2020: Thoughts On Our Portfolio Strategy And Why We Stay The Course

Disclosure: I am/we are long ARDC, OXLC, PCM, PCN, RA, XFLT. 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.

Originally published on Seeking Alpha

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