quarterly closed-end fund & bdc review and outlook · quarterly closed-end fund & bdc...
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QUARTERLY CLOSED-END FUND
& BDC REVIEW AND OUTLOOK
John Cole Scott, CFS
Chief Investment OfficerClosed-End Fund Advisors, Inc.
2nd Quarter 2017 Review &3rd Quarter 2017 Outlook
Intermediate/Advanced CEF Skill Level
July 12, 2017
Closed-End Fund Advisors is a Registered Investment Advisory Firm Specializingin 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 Service
• CEF & BDC News/SEC Alert & “CEFA’s Closed-EndFund Universe” Report (w/ BDCs).
• Consulting with Institutional Investors and CEF Fund Sponsors
• CEFData.com: CEF/BDC Web Modules Daily Data: Est $1K- $4Kper quarter based on classification (Indv, RIA or FA / Fund Sponsor)
Specializing in CEF/BDC Research, Trading & Portfolio Management
www.CEFadvisors.com
Founded 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 leverageso BDCs Limited to 200% asset coverage (total assets /
total debt) or “one turn” of leverage, excluding SBICfacilities (BDCs). Higher fee structure w/ carry
o The closed-end structure is not an asset class but aninvestment vehicle
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 and required to offer portfolio companies ‘managerial
assistance’
www.CEFadvisors.com 7
www.CEFadvisors.com 8
-40
-30
-20
-10
0
10
20
30
40
50
6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012 6/1/2013 6/1/2014 6/1/2015 6/1/2016 6/1/2017
Trad CEF - Total ReturnJune 30, 2007 - June 30, 2017
NAV TR Price TR
www.CEFadvisors.com 9
-16
-14
-12
-10
-8
-6
-4
-2
0
2
6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012 6/1/2013 6/1/2014 6/1/2015 6/1/2016 6/1/2017
Trad CEF - Average Discount / PremiumJune 30, 2007 - June 30, 2017
www.CEFadvisors.com 10
-60
-40
-20
0
20
40
60
6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012 6/1/2013 6/1/2014 6/1/2015 6/1/2016 6/1/2017
BDC Debt - Total ReturnJune 30, 2007 - June 30, 2017`
NAV TR Price TR
www.CEFadvisors.com 11
-60
-50
-40
-30
-20
-10
0
10
20
6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012 6/1/2013 6/1/2014 6/1/2015 6/1/2016 6/1/2017
BDC Debt - Average Discount / PremiumJune 30, 2007 - June 30, 2017
12
1. First Lien Loans: 55%2. Second Lien Loans: 18%3. Unsecured Loans: 10%4. Equity/Other: 17%
www.CEFadvisors.com
Types of Loans Held By BDCs
Avg Portfolio Turnover: 35.2% Avg Variable Loans: 72% / Fixed: 28% Libor Floors: 42% at 1% Avg Level Avg Loan Size: $9.7M 72% of Loans Under $25MM Average Maturity 4.1 with a range of 2 Years to 6 years Avg No of Loans: 128 from 101 Companies
Source: Data as of June 30, 2017 from CEFData.com
www.CEFadvisors.com 13
-40
-30
-20
-10
0
10
20
30
40
50
60
70
6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012 6/1/2013 6/1/2014 6/1/2015 6/1/2016 6/1/2017
Municipal Bonds - Total ReturnJune 30, 2007 - June 30, 2017
NAV TR Price TR
www.CEFadvisors.com 14
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012 6/1/2013 6/1/2014 6/1/2015 6/1/2016 6/1/2017
Municipal Bonds - Average Discount / PremiumJune 30, 2007 - June 30, 2017
Municipal Bond Closed-End Fund Universe
Source: Data as of June 30, 2017 from CEFA’s Universe Data15
Note: Volatility is a one year rolling calculation
National
Muni Funds
Single State
Muni FundsTotal
Number of Funds 90 81 171
Net Assets (Total) $47,219 $18,492 $65,710
Net Assets $525 $228 $384
Earnings Coverage Ratio % 100.1 101.4 100.7
Premium / Discount % -2.41 -3.66 -3.00
Total Mkt Yield % 5.11 4.55 4.84
Leverage Adj NAV Yield % 3.79 3.27 3.54
NAV Volatility 4.17 3.99 4.09
Leverage % 31.6 34.0 32.7
Leverage Cost % 0.64 0.79 0.71
Duration 8.57 9.27 8.90
Insured % 13.4 18.0 15.6
Investment Grade % 85 91 88
Credit Quality A A A
Municipal Bond Closed-End Fund Universe
Source: Data as of June 30, 2017 from CEFA’s Universe Data16
Tax Equivalent Yield ComparisonMarried Couple with W-2 Income of $1MM+
Sources: CEFA’s Universe Data as of 6/30/2017 and tax rates from IRS and NY State.
17
www.CEFadvisors.com 18
-60
-40
-20
0
20
40
60
80
6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012 6/1/2013 6/1/2014 6/1/2015 6/1/2016 6/1/2017
MLP - Total ReturnJune 30, 2007 - June 30, 2017
NAV TR Price TR
www.CEFadvisors.com 19
-15
-10
-5
0
5
10
15
20
6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012 6/1/2013 6/1/2014 6/1/2015 6/1/2016 6/1/2017
MLP - Average Discount / PremiumJune 30, 2007 - June 30, 2017
20
Broad Investable UniverseAssets of Closed-End Funds/BDCs* by type , as of June 30, 2017
$276.3 Billion x 4.2% = ~$12 Billion
in total CEF assets average discount exploitable undervaluation
# of FundsTotal Net
Assets
Premium /
Discount
Market
YieldBeta Duration Leverage
Non Lev
Expense
Ratio
Average
Net Assets
Equity Funds 215 $111,993 -5.22% 6.75% 0.90 14.07% 1.52 $521
Taxable Bond 147 $65,361 -2.89% 7.35% 0.24 3.7 25.57% 1.43 $445
Municipal Bond 171 $65,710 -3.00% 4.84% -0.07 8.9 32.74% 1.02 $384
BDCs 50 $33,281 -8.22% 8.42% 0.74 38.90% 6.10 $666
Total CEFs 583 $276,345 -4.24% 6.49% 0.44 6.6 24.57% 1.74 $474
National Muni Bond 90 $47,219 -2.41% 5.11% -0.06 8.6 31.62% 0.94 $525
Debt Focused BDC 45 $32,581 -4.74% 9.23% 0.77 40.63% 5.73 $724
Covered Call 29 $19,967 -3.78% 8.31% 0.80 2.68% 1.13 $689
US Stock 29 $19,460 -8.64% 6.37% 0.81 12.36% 1.79 $671
MLP Funds 27 $13,533 -1.38% 9.34% 2.00 28.33% 1.87 $501
High Yield Bond 35 $12,978 -5.06% 7.44% 0.28 3.7 22.45% 1.26 $371
World Stock 58 $13,923 -8.41% 4.38% 0.80 5.99% 1.59 $240
Senior Loan 26 $11,550 -3.98% 6.46% 0.12 1.0 31.63% 1.63 $444
Preferred Equity 16 $10,971 0.98% 7.15% 0.17 5.2 30.91% 1.25 $686
REIT Funds 11 $6,024 -8.81% 8.05% 0.70 22.99% 1.41 $548
Convertible Bond 11 $4,365 -3.44% 8.92% 0.77 3.1 28.77% 1.45 $397
Investment Grade Bond 13 $4,016 -1.71% 6.03% 0.13 5.7 19.49% 0.91 $309
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 174(81%)
41(19%)
164(76%)
46(21%)
169(79%)
46(21%)
Taxable BondTraditional CEFs
114(78%)
33(22%)
145(99%)
2(1%)
134(91%)
13(9%)
Municipal BondTraditional CEFs
128(75%)
44(25%)
171(100%)
1(0%)
163(95%)
8(5%)
BDCs 35(70%)
15(30%)
43(86%)
6(12%)
17(34%)
33(66%)
ALL CEFs450
(77%)133
(23%)523
(90%)54
(9%)483
(83%)100
(17%)
Data as of June 30, 2017For BDC funds, we show 1Q17 NAV TR, as 6/30/2017 NAV hasn’t been disclosed yet
Current Closed-End Discounts
www.CEFadvisors.com 22
Source: CEFData.com
US Equity -8.64
Non US Equity -8.41
Special Equity -2.7
Taxable Bond -2.89
Nat Muni Bond -2.41
State Muni Bond -3.66
BDC Debt Focused-4.74
BDC Equity Focused-39.59
-45 %
-40 %
-35 %
-30 %
-25 %
-20 %
-15 %
-10 %
-5 %
0 %
5 %
Ave
rage
CEF
Dis
cou
nt
Avg CEF Discount % as of June 30, 2017
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
-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 - June 30, 2017
All Trad CEFs All BDC CEFs Av All Trad CEFs Av All BDC CEFs
Closed-End Discount TrendsTraditional & BDC
www.CEFadvisors.com 23
Source: CEFData.com
2Q Ended with an average CEF Discount of -4.24%
10 Year Average Discount: -5.12%
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
-50.00
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
- Average CEF DiscountMay 11, 2012 - June 30, 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 – 2Q 2017
www.CEFadvisors.com 25
Source: CEFAData.com
Fund Grouping Avg Vol2Q 2017
Avg Vol1Q 2017
VolumeTrend
US Equity Funds 122,950 138,842 -11%
Non-US Equity Funds 58,336 64,539 -10%
Specialty Equity Funds 133,310 159,939 -17%
Ave Traditional Equity CEF 109,984 128,020 -14%
Taxable Bond Funds 111,971 146,037 -23%
National Muni Bond Funds 66,584 89,105 -25%
State Muni Bond Funds 24,187 29,941 -19%
Ave Traditional Bond CEF 76,766 100,063 -23%
Average Traditional CEF 90,165 111,414 -19%
Debt Focused BDC Funds 304,856 371,267 -18%
Equity Focused BDC Funds 28,500 53,263 -46%
Average BDC 277,220 326,747 -15%
Average For ALL CEFs 106,208 129,914 -18%
Data as of June 30, 2016
26
6.3%
13.0%
18.7%
22.3%
27.1%
9.4%
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: 583 closed-end funds; data as of 6/30/17, Source: CEFData.com
www.CEFadvisors.com 27
CEF/BDC Yield Comparison
Data as of 6/30/2017.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 )
9.0% 9.0%
9.5%
8.1% 8.1%7.8%
8.1%
7.2%
6.3%
5.4% 5.4%
3.2%
7.1%
2.8%3.2%
4.3%
5.7%
10.6%
6.7%6.5%
7.4%
6.0%
7.6%
5.8%
7.9%
5.5%
4.6%4.8%
3.9%
2.9%
0%
2%
4%
6%
8%
10%
12%
28
15.1%
33.4%
22.5%
20.2%
6.7%2.1%
Yield Under 4%
Yield 4%-6%
Yield 6%-8%
Yield 8% -10%
Yield 10% -12%
Yield Over 12%
Note: 583 CEFs; data as of 6/30/2017 , 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
-5 %
0 %
5 %
10 %
15 %
20 %
25 %
30 %
Nat Muni Bond - Relative UNIIMay 11, 2012 - June 30, 2017
Nat Muni Bond Av Nat Muni Bond
Relative UNII for TraditionalCEF 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
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Main Peer Groups - Historical ROCMay 11, 2012 - June 30, 2017
US Equity Non US Equity Special Equity Taxable Bond
Nat Muni Bond State Muni Bond BDC Debt Focused BDC Equity Focused
Return of Capital (90 Day) For CEFs
www.CEFadvisors.com 30
Source: CEFData.com
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 withDestructive
RoC
% Funds withDestructive
RoC
AverageDestructive
RoC %
1Yr NAVTR vs NAV
Yield
3Yr NAVTR vs NAV
Yield
US Equity Funds 3 10% 17% 159% -45%
Non-US Equity Funds4 7% 20% 330% -55%
Specialty EquityFunds 45 39% 41% -114% -101%
Equity CEF 53 25% 38% 90% -84%
Taxable Bond Funds17 12% 21% 80% -53%
National Muni BondFunds 8 9% 1% -128% 11%
State Muni BondFunds 4 5% 7% -145% 16%
Bond CEF 29 9% 13% -16% -24%
Average CEF 82 15% 29% 30% -49%*Whitepaper
Closed-End FundMarket Price volatility vs. NAV volatility (1 Year)
www.CEFadvisors.com 32
Source: June 30, 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(2517 CEF PRs in 2Q17)
www.CEFadvisors.com 33Source: Fund Press Releases / SEC Filings.
Announcement Type 2Q 2017 2016 2015 2014 Avg per Qsince 2014
Rights Issue / Offering 3 9 6 9 2
Secondary Offering (Trad CEF) 1 6 2 4 1
Secondary Offering (BDCs) 10 4 16 16 4
Tender Offer 14 17 15 16 5
Distribution Policy Change(TradCEF)
3 6 11 19 3
Distribution Policy Change (BDCs) 0 0 1 1 0
13 Filings (Trad CEF) 87 897 906 - 243
New N-2 Filings 13 97 52 31 16
Updated N-2 Filings 65 120 104 52 25
Investment Manager /Advisor Change
9 35 5 20 5
Portfolio Manager Change 25 39 45 60 14
Leverage Amount / Type Change 21 105 52 47 17
CEF & BDCDividend Increases vs. Decreases
www.CEFadvisors.com 34
Source: Fund Press Releases
DividendAnnouncement
2Q 2017Number of
Announcements
2Q 2017AverageChange
2Q ‘16 – 1Q ‘17Number of
Announcements
2Q ‘16 – 1Q ‘17AverageChange
Dividend Maintains 1245(91.5%) N/A 5408 (88.4%) N/A
Dividend Increases 49 (3.6%) +5.83% 162 (3.0%) +5.76%
Dividend Decreases 67 (4.9%) -6.42% 465 (8.6%) -9.31%
Under 5% Increase 34 (69%) +1.40% 108 (67%) +1.82%
Over 5% Increase 15 (31%) +15.86% 54 (33%) +13.64%
Under 5% Decrease 35 (52%) -2.03% 175 (38%) -2.78%
Over 5% Decrease 32 (48%) -11.21% 290 (62%) -13.25%
2% of announcements “Big Cuts”
0
20
40
60
80
100
120
140
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
2Q 2017 Closed-End FundDividend Increases vs. Decreases
www.CEFadvisors.com 35
Source: Fund Press Releases
CEF Recent Dividend Changes(Policies NOT Promises)
www.CEFadvisors.com 36
Source: CEFAData.com
3 Year Dividend Growth• 304 Funds (57%) had negative 3 year growth averaging -19.5%• 75 Funds (14%) had positive 3 year growth averaging +18%
2 Year Lookback -- 370 Funds changed their dividend policy in the past 2 years (70% offunds)• 289 Cut (78%) an average of -12% while 79 (22%) increased an average of +8%
• 186 of these funds have “level” or “managed distributions”• 147 of those were cut an average -10%• 30 were increased an average of +8%
1 Year Lookback• 83 increase vs. 253 decreases. 43 Funds had BOTH increases and decreases in the
past year.
CEF & BDCHistorical IPOs (2Q 17)
www.CEFadvisors.com 37
Source: SEC Filings, Press Releases
YTD 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Number ofIPOs
5 8 9 15 29 28 26 22 14 3 45
AverageAssets
In $ millions$305 $225 $272 $511 $511 $442 $258 $371 $192 $134 $629
Total NewCEF IPO
Assets in $Billions
$1.6B $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
CEF & BDCHistorical IPOs (2Q 17)
www.CEFadvisors.com 38
Source: June 30, 2017 - CEFData.com
Inception Assets (M) | # funds
8 10
54 5
5
2
3 23
2 21
23
2 3
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
39
$890
$763
$426
$325
$210 $163
$32 High Yield Bond Funds
Debt Focused BDC
Mortgage Bond Funds
Loan Participation
Global Income Funds
Prefered Equity Leveraged
Global Equity
Note: Inception Assets in millions ; data as of 6/30/2017 , cefdata.com
2017 IPO Details2Q 2017
www.CEFadvisors.com 40
TCG BDC (CGBD) – Debt Focused BDC -
IPOed on June 14, 2016
IPO Price: $18.50 IPO Assets: $763M
Price as of 6/30/17: $18.01 Disc/Prm as of 6/30/17: -1.32%
AllianzGI Conv & Inc 2024 Trg (CBH) – Taxable Bond Funds -
IPOed on June 28, 2017
IPO Price: $10.00 IPO Assets: $165M
Price as of 6/30/17: $10.02 Disc/Prm as of 6/30/17: 2.04%
Source: Fund Press Releases
IPOs during 3Q 2016 – 1Q 2017Current Discount / Premium
www.CEFadvisors.com 41
Data as of March 31, 2016 Source: CEFAData.com
Ticker Fund Name Type Current Disc/Prm Current Price IPO Price Curr vs IPO
JHB Nuv Hi Incm Nov 2021 Tgt Trm Fd Traditional -0.49% $10.11 $10.00 101.10%
OPP RiverNorth DbLin Stgc Opp Fd Traditional -2.64% $19.54 $20.00 97.70%
GGO Gabelli Go Anywhere Tr Traditional -12.30% $16.83 $20.00 84.15%
IHIT Invsc Hi Incm 2023 Tgt Trm Fd Traditional 0.20% $10.08 $10.00 100.80%
FIV FT Sr Flt Rt 2022 Tgt Trm Fd Traditional 2.75% $10.10 $10.00 101.00%
JPT Nuv Pref & Incm 2022 Trm Fd Traditional -0.47% $25.39 $25.00 101.56%
BGIO 2022 Glbl Incm Opp Tr Traditional 1.62% $10.04 $10.00 100.40%
JCO Nuveen Cr Opp 2022 Tgt Trm Fd Traditional 1.74% $10.04 $10.00 100.40%
Closed-End Fund Mergers
www.CEFadvisors.com 42
Source: Fund Press ReleasesReasons to Merge:1. Reduce expense ratio2. Increase liquidity3. Reduce bid/ask spread4. 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
Nu
mb
ero
fC
lose
d-
End
Fun
ds
Closed-End Funds Merged into Other Closed-End Funds (June 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: June 30, 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
-20
0
20
40
60
80
100
120
Trad CEFs Groups - 90 Day NAV/Price CorrelationJune 22, 2012 - June 30, 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 GroupingCorrelation
2Q 17Correlation
1Q 17Correlation
Trend
US Equity Funds 78.71% 79.30% -0.59%
Non-US Equity Funds 86.50% 84.00% 2.50%
Specialty Equity Funds 79.97% 75.80% 4.17%
Ave Equity CEF 81.06% 79.40% 1.66%
Taxable Bond Funds 62.13% 64.10% -1.97%
National Muni Bond Funds 67.50% 47.90% 19.60%
State Muni Bond Funds 59.05% 46.00% 13.05%
Ave Bond CEF 62.87% 54.90% 7.97%
Average CEF 70.21% 64.80% 5.41%
Data as of June 30, 2017
2Q17 , YTD and 1Q17 Closed-End FundNAV / Market Price Performance
www.CEFadvisors.com 46Source: CEFAData.com
Fund Grouping 2Q 2017NAV
1Q 2017Mkt Pr
YTDNAV
YTDMkt Pr
1Q 2017NAV
1Q 2017Mkt Pr
US Equity Funds 3.4% 5.7% 9.3% 13.7% 5.8% 7.7%
Non-US Equity Funds 5.4% 6.9% 15.6% 20.3% 9.6% 12.5%
Specialty Equity Funds -0.3% 2.0% 4.7% 9.4% 5.0% 7.3%
Avg Traditional Equity CEF 1.9% 4.1% 8.5% 13.4% 6.4% 8.8%
Taxable Bond Funds 2.5% 3.5% 6.0% 8.3% 3.5% 4.6%
National Muni Bond Funds 2.8% 3.7% 4.8% 6.5% 2.0% 2.7%
State Muni Bond Funds 2.7% 3.5% 4.5% 5.5% 1.8% 2.0%
Avg Traditional Bond CEF 2.6% 3.6% 5.3% 7.1% 2.6% 3.4%
Average Traditional CEF 2.3% 3.8% 6.6% 9.6% 4.1% 5.6%
Debt Focused BDC 2.3% -2.1% 3.7% 4.6% 2.3% 7.3%
Equity Focused BDC 0.2% 0.0% -1.4% 3.6% 0.1% 4.3%
Average BDC 2.1% -1.9% 3.2% 4.5% 2.0% 6.8%
Data as of June 30, 2017
CEF / BDC Index Performance
www.CEFadvisors.com 47Source: CEFAData.com
Fund Grouping 2Q 2017NAV
2Q 2017Mkt Pr
1 YearNAV
1 YearMkt Pr
5 YearNAV
5 YearMkt Pr
12 Major Sectors Index 2.2% 3.5% 12.4% 14.8% 9.1% 8.6%
High Income Index 1.8% 3.2% 17.0% 19.9% 8.3% 7.4%
Tax-Sensitive Income Index -0.8% 1.3% 6.9% 7.9% 4.7% 4.1%
60/40 Balanced Index 3.4% 4.7% 14.6% 19.3% 9.6% 9.5%
Global Equity Index 4.7% 6.6% 18.8% 24.5% 11.1% 11.2%
Equity Income Index 2.7% 5.1% 12.5% 18.1% 8.8% 9.2%
Taxable Bond and BDC 2.4% 3.2% 11.7% 13.9% 7.5% 6.6%
National Municipal Bond 2.5% 3.5% -1.6% -3.9% 5.9% 4.7%
Preferred Equity Index 4.4% 6.1% 12.9% 10.6% 11.0% 10.2%
Convertible Bond Index 3.3% 5.0% 19.5% 25.8% 8.6% 8.2%
High Yield Bond Index 2.2% 2.5% 15.9% 14.8% 8.2% 5.1%
Sr. Loan Index 0.8% 0.3% 11.4% 17.0% 6.7% 6.1%
MLP Index -9.1% -6.5% 5.5% 9.3% 0.7% -0.7%
REIT / Real Asset Index 3.7% 5.4% 5.8% 8.0% 11.1% 10.6%
Debt-BDCs Index 1.9% -2.0% 9.6% 20.8% 10.2% 9.9%Data as of June 30, 2017, Annualized over 1 year
www.CEFadvisors.com 48
CEF Institutional Holdings(Traditional CEFs 2Q 17)
Source: CEFData.com
InstitutionalHoldings Trends
Increase: 318 fundsDecrease: 186 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
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 - June 30, 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
tIn
stit
uti
on
alH
old
er(%
)
Note: Data as of 7/11/2017 , cefdata.com
BDC Shares Owned by Institutions (%)Approved Below NAV Offering (2Q)
GAIN0
5
10
15
20
25
30
0 10 20 30 40 50 60 70
CEF/BDCActivist / Institutional Investors
www.CEFadvisors.com 50
Source: CEFAData.com
Activist:1. Ancora Advisors2. Bull Dog Investors3. Special Opportunities Fund
(SPE -- Bulldog)4. Ironsides Partners5. Karpus Investment Management6. Western Investment7. Elliott Associates (BDCs)8. Wynnefield Capital (BDCs)
Followers:1. City of London2. Punch & Associates Investment
Management3. Relative Value Partners4. 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
2Q 2017
www.CEFadvisors.com 51Source: SEC Filings, Press Releases
MonthFiled
Filing Closed-End Fund/BDC Investor/Who Notes
Jun 13D/A AC Enh Gwth & Incm Fd (LCM) Bulldog Dec(7.02%)
Jun 13D/AChina Fund (CHN)
City of London Inc(24.9%)proposed Invstmnt and Mgmt
Agreement
Jun 13D/A Fed Prmr Imd Muni Incm Fd (FPT) Karpus 21.1%Reorganization and
Tender
Jun Offering Fidus Investment Corp (FDUS) Public 1,750,000 shares@$16.8
Jun 13D Invsc Hi Incm Tr II (VLT) Saba Inc(9.89%)Discussions with mgmt
Jun 13G/A Madison Stgc Sctr Prm Fd (MSP) Karpus 30.58%Opposition to reorganization
Jun Rights Reaves Util Incm Fd (UTG) Public 1 for 3
Source: SEC Filings, Press Releases
Closed-End Fund Corporate Actions /Activist Update
www.CEFadvisors.com 52
Source: SEC Filings, Press Releases
MonthFiled
Filing Closed-End Fund/BDC Investor/Who Notes
May Tender AC Convt Sec & Incm Fd (AVK) Saba Up to 15% @ 98%of NAV
May Offering Alcentra Capital Corp (ABDC) Public 1,691,839 shares @$13.68
May NAVProposal
Ares Capital Corp (ARCC) Public Sell shares belowNAV
May 13G/A JPMorgan China Region Fd (JFC) City of London Discount Mgmt Plan
Apr Tender New Ireland Fd (IRL) Public Up to 30% @ 98%of NAV
Apr Rights NexPoint Cr Stgs Fd (NHF) Public 1 for 3
www.CEFadvisors.com 53
CEF Activist Holdings(Traditional CEFs 2Q 17)
Source: CEFData.com
ActivistHoldings Trends
Increase: 68 fundsDecrease: 79 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
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 - June 30, 2017
All Trad CEFs All Equity All Bond US Equity Non US Equity
Special Equity Taxable Bond Nat Muni Bond State Muni Bond
-25
-20
-15
-10
-5
0
5
10
15
5 15 25 35 45 55 65 75
www.CEFadvisors.com 54
Pre
miu
m/
Dis
count
(%)
Note: Data as of 7/11/2017 , cefdata.com
Shares owned by Activists / Followers(%)
55
$1,396
$853
$537
$343
$118$108 $49 Non U.S. Equity
BDC
Taxable Bond
U.S. Equity
Specialty Equity
Hybrid / Balanced
National Muni Bond
Note: millions of dollars, data as of 7/11/2017, cefdata.com
CEF Activist Ownership $3,404
Asian Equity $1,003
BDC Debt $813
General Equity $343
US Government Bond $290
Latin American Equity $150
Top 5 Peer Groups
56
$6,300
$4,172$3,815
$2,930
$1,461
$1,261
$574 $394Taxable Bond
Non U.S. Equity
Specialty Equity
BDC
U.S. Equity
National Muni Bond
Single State Muni Bond
Hybrid / Balanced
Note: millions of dollars, data as of 4/19/2017, cefdata.com
CEF Activist Ownership $20,907
BDC Debt $2,770
Asian Equity $2,257
Covered Call $1,448
High Yield Bond $1,362
MLP Funds $1,185
Top 5 Peer Groups
CEFA’s Outlook for 3Q and 2017
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 & BDCsin a Rising Rate Environment
(March 2004 to September 2007)
Full articleon 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 & 26 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 withguaranteed renewals at 25% off through July 31, 2018 for Q WebinarAttendees (Promo code CEFD2017) that sign up by August 31, 2017.
Pricing per Quarter is $1K (Individual) $2K (Small RIA/FA) $3K LargeRIA/Hedge Fund, $4K Fund Sponsor/Product Sponsor. We always offerprorated refunds and include 30 minutes per quarter free consulting timewith 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.com
The Closed-End Fund Association: www.Closed-EndFunds.com
CEF Connect (Nuveen Sponsored): www.CEFconnect.com
Morningtar's CEF Site:http://www.morningstar.com/Cover/CEF-Closed-End-Funds.aspx
Investment Company Institute: http://www.ici.org/research#fact_books
CEFNetwork (Pristine Advisers): www.CEFnetwork.com
CEF Insight (Activist Info from AST Fund Solutions): www.CEFinsight.com
Capital Link's CEF Portal: http://cef.capitallink.com/
Morningstar Discussion Board:http://socialize.morningstar.com/NewSocialize/forums/100000006.aspx
Yahoo CEF Discussion Board: https://groups.yahoo.com/neo/groups/closedendfunds2/info
The CEF Network on LinkedIN: www.CEF-Network.com
Seeking 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, CFS
EXPERIENCE
CIO of Registered Investment
Advisor Focused Exclusively on CEFs
& BDCs since 2001
EDUCATION
College of William & Mary
Bachelor of Science in Psychology
2000
John Cole Scott, CFS
Chief 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 550+ 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 26 CEF/BDC based indexes; 8diversified portfolio objective, 8 Equity and 10 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 beconsidered an offer, or solicitation, to deal in any of the mentioned funds. The information isprovided on a general basis for information purposes only, and is not to be relied on as advice, as itdoes not take into account the investment objectives, financial situation or particular needs of anyspecific investor.
Any research or analysis used to derive, or in relation to, the information herein has been procuredby Closed-End Fund Advisors (“CEFA”) for its own use, and may have been acted on for its ownpurpose. The information herein, including any opinions or forecasts have been obtained from or isbased 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 oromissions. As such, any person acting upon or in reliance of these materials does so entirely at hisor her own risk. Any projections or other forward-looking statements regarding future events orperformance of countries, markets or companies are not necessarily indicative of, and may differfrom, actual events or results. No warranty whatsoever is given and no liability whatsoever isaccepted by CEFA or its affiliates, for any loss, arising directly or indirectly, as a result of any actionor 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 notbe 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 opinionsor forecasts expressed herein at any time, without notice. Data comes from our CEF Universeservice dated June 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?