FRA - Weekly Closed-End Fund Roundup - March 5 2023
2023-03-16 08:03:51 ET
Summary
- 19 out of 22 CEF sectors were positive on price and 12 out of 22 sectors were positive on NAV last week.
- Delaware/Abrdn mergers are closing this week.
- BlackRock senior loan CEFs (FRA/BGT) boost distributions, but equity and muni funds cut.
Author's note: This article was released to CEF/ETF Income Laboratory members on March 7, 2023. Please check latest data before investing.
The Weekly Closed-End Fund Roundup will be put out at the start of each week to summarize recent price movements in closed-end fund [CEF] sectors in the last week, as well as to highlight recently concluded or upcoming corporate actions on CEFs, such as tender offers. Data is taken from the close of Friday, March 3rd, 2023 .
Weekly performance roundup
For CEFs, 19 out of 22 sectors were positive on price (up from 0 last week) and the average price return was +1.01% (up from -2.23% last week). The lead gainer was Commodities (+2.97%) while Taxable Munis lagged (-1.01%).
12 out of 22 sectors were positive on NAV (up from 0 last week), while the average NAV return was +0.25% (up from -1.38% last week). The top sector by NAV was Convertibles (+1.85%) while the weakest sector by NAV was Investment Grade (-0.59%).
The sector with the highest premium was Limited Duration (+3.08%), while the sector with the widest discount is MLPs (-14.77%). The average sector discount is -5.84% (up from -6.12% last week).
The sector with the highest premium/discount increase was Limited Duration (+1.29%), while Taxable Munis (-0.83%) showed the lowest premium/discount decline. The average change in premium/discount was +0.19% (up from -0.63% last week).
The sector with the highest average 1-year z-score is Multisector Income (+1.12), while the sector with the lowest average 1-year z-score is Single-state Munis (-1.02). The average z-score is +0.03 (up from -0.15 last week).
The sectors with the highest yields are Senior Loans (+11.45%), Emerging Market Income (+10.86%), and Multisector Income (+10.76%). Discounts are included for comparison. The average sector yield is +7.97% (down from +8.12% last week).
Individual CEFs that have undergone a significant decrease in premium/discount value over the past week, coupled optionally with an increasing NAV trend, a negative z-score, and/or are trading at a discount, are potential buy candidates.
| Fund |
| Ticker |
| P/D decrease |
| Yield |
| P/D |
| z-score |
| Price change |
| NAV change |
| Nuveen Dynamic Municipal Opportunities |
| ( NDMO ) |
| -5.66% |
| 6.69% |
| 1.85% |
| 1.8 |
| -1.24% |
| -2.46% |
| The Central and Eastern Europe Fund |
| ( CEE ) |
| -5.21% |
| 2.60% |
| 26.10% |
| -0.4 |
| -1.82% |
| 2.44% |
| Guggenheim Tax Muni & Inv Grade Debt Tr |
| ( GBAB ) |
| -4.21% |
| 9.00% |
| 3.65% |
| 0.8 |
| -3.62% |
| 0.87% |
| Virtus Stone Harbor Emerging Markets Inc |
| ( EDF ) |
| -4.11% |
| 14.60% |
| 12.56% |
| 0.7 |
| -3.52% |
| -0.45% |
| KKR Income Opportunities Fund |
| ( KIO ) |
| -3.79% |
| 11.13% |
| -9.90% |
| 0.1 |
| -1.22% |
| -0.94% |
| Virtus Diversified Inc & Conv Fund |
| ( ACV ) |
| -3.41% |
| 10.45% |
| -0.72% |
| 0.7 |
| -0.77% |
| 0.00% |
| Nuveen Municipal Income |
| ( NMI ) |
| -3.40% |
| 3.94% |
| -6.39% |
| -0.1 |
| -3.79% |
| -1.88% |
| BlackRock Health Sciences |
| ( BME ) |
| -3.03% |
| 6.12% |
| 0.26% |
| -0.3 |
| -3.24% |
| -1.28% |
| Ivy High Income Opportunities Fund |
| ( IVH ) |
| -2.63% |
| 15.24% |
| -1.10% |
| 1.8 |
| -0.34% |
| -0.36% |
| Cushing MLP & Infras Total Return |
| ( SRV ) |
| -2.55% |
| 15.43% |
| -12.67% |
| 0.9 |
| 0.23% |
| 1.49% |
Conversely, individual CEFs that have undergone a significant increase in premium/discount value in the past week, coupled optionally with a decreasing NAV trend, a positive z-score, and/or are trading at a premium, are potential sell candidates.
| Fund |
| Ticker |
| P/D increase |
| Yield |
| P/D |
| z-score |
| Price change |
| NAV change |
| Herzfeld Caribbean Basin |
| ( CUBA ) |
| 10.43% |
| 17.11% |
| -9.29% |
| 1.9 |
| 3.06% |
| -1.69% |
| Gabelli Multimedia |
| ( GGT ) |
| 6.30% |
| 14.62% |
| 35.89% |
| -0.3 |
| 4.15% |
| -3.84% |
| PIMCO Strategic Income Fund |
| ( RCS ) |
| 6.13% |
| 10.46% |
| 31.46% |
| 2.5 |
| 4.65% |
| -1.77% |
| PCM Fund |
| ( PCM ) |
| 4.96% |
| 10.16% |
| 34.81% |
| 2.2 |
| 2.49% |
| -1.04% |
| BlackRock Science and Technology Trust |
| ( BST ) |
| 4.60% |
| 9.26% |
| 4.89% |
| 2.0 |
| 3.75% |
| -3.81% |
| XAI Octagon FR & Alt Income Term Trust |
| ( XFLT ) |
| 4.56% |
| 12.66% |
| 4.70% |
| 0.1 |
| 5.33% |
| -1.26% |
| BlackRock Innovation & Growth Tr |
| ( BIGZ ) |
| 4.18% |
| 10.84% |
| -17.64% |
| 0.0 |
| 5.44% |
| 0.00% |
| Putnam Muni Opportunities |
| ( PMO ) |
| 3.98% |
| 5.45% |
| 7.54% |
| 1.7 |
| 3.36% |
| -0.27% |
| abrdn Australia Equity Fund Inc |
| ( IAF ) |
| 3.94% |
| 10.77% |
| -3.78% |
| 0.3 |
| 6.39% |
| -0.92% |
| Oxford Lane Capital Corp |
| ( OXLC ) |
| 3.91% |
| 15.46% |
| 25.68% |
| 1.2 |
| 3.56% |
| -1.02% |
Recent corporate actions
These are from the past month. Any new news in the past week has a bolded date:
February 17, 2023 | KKR Income Opportunities Fund Announces the Results of Its Rights Offering.
February 16, 2023 | Delaware Enhanced Global Dividend and Income Fund Announces Final Results of Tender Offer.
Upcoming corporate actions
These are from the past month. Any new news in the past week has a bolded date:
February 27, 2023 | CBRE Global Real Estate Income Fund (NYSE: IGR) Announces Terms of Rights Offering.
December 22, 2022 | Delaware Investments Dividend and Income Fund, Inc., Delaware Enhanced Global Dividend and Income Fund, and Delaware Ivy High Income Opportunities Fund Announce Date of Reorganizations.
December 22, 2022 | Macquarie Global Infrastructure Total Return Fund Inc. Announces Date of Reorganization Into abrdn Global Infrastructure Income Fund.
November 9, 2022 | Eaton Vance Closed-End Funds Announce Proposed Merger.
Recent activist or other CEF news
These are from the past month. Any new news in the past week has a bolded date:
------------------------------------
Distribution changes announced this month
These are sorted in ascending order of distribution change percentage. Funds with distribution changes announced this month are included. Any distribution declarations made this week are in bold. I've also added monthly/quarterly information as well as yield, coverage (after the boost/cut), discount and 1-year z-score information. I've separated the funds into two sub-categories, cutters and boosters.
Cutters
Boosters
-----------------------------------
Commentary
1. Delaware/Abrdn mergers closed
The Delaware/Abrdn mergers (press releases here and here ) closed on Friday, March 10, 2023 . We have previously discussed these in previous CEF Weekly Roundups ( here and here ).
In brief, ACP will be acquiring IVH, AGD will be acquiring DEX and DDF, and ASGI will be acquiring MGU.
In our Corporate Actions Tracker page, we can see that the differential between ACP and IVH remained insanely wide with less than a week to go. Those holding ACP were strongly recommended to switch to IVH. We owned IVH in our Tactical Income-100 portfolio, but sold it on the final day of trading.
Income Lab
The spread between ADG and DEX and between ASGI and MGU were above 1%, which is still a large spread for a 1-week holding period. For those interested in exploiting this arbitrage, the play would have been to sell/short AGD and buy DEX, or sell/short ASGI and buy MGU.
Some readers asked about the distribution sustainability after the mergers. In principle, there will be no effect because the mergers are on a NAV-for-NAV basis. Assuming that the acquiring fund sells the target's portfolio and then reinvests in similar securities as it had before, there would be no change in the earnings capacity and hence the distribution stability.
2. Boosts from BlackRock senior loan funds, cuts to equity CEFs
The start of the month brings news of distribution boosts and cuts.
BGT and FRA , two senior loan funds from BlackRock, boosted their distributions by +38.7% and +38.8% and now yield 11.16% and 11.11% respectively.
Many senior loan CEFs, bolstered by increases in short-term financing rates (previously linked to LIBOR, now SOFR), have raised their distributions in the past year.
YCharts
However, it is unclear whether the new yield is fully covered by earnings. This is because the annual report numbers are lagging figures, and with the short-term rates having risen so quickly over the last year, they will not reflect the current earnings potential of the funds. This is why BGT and FRA are showing with only 50% coverage at their higher distribution levels.
More update data can be found in BlackRock's earnings summary reports. Here, as of December 31, 2022, the 3-month coverage ratios for BGT and FRA are around 114%. However, this was on the old distribution rate. At the higher distribution rate, and assuming constant earnings, the coverage drops to around 82%. However, earnings have likely risen in the meantime so the actual coverage will be greater than 82%.
On the flip side, many equity CEFs reduced their distributions this month. This is not surprising as we are still in a bear market, and equity CEFs generally supplement their distributions with capital gains, which are lacking in the current market environment (see Income Lab Ideas: Analyzing Equity CEF Distribution Sustainability ). These include BSTZ, a holding in our Tactical Income-100 portfolio, which reduced its monthly payout by -16.0%. BSTZ was the only BlackRock equity fund that cut, with BGR seeing a +12.3% boost.
For the Nuveen funds, JRI, a holding of our Income Generator portfolio, cut by -9.8%. The popular QQQX also cut by -14.9%, as well as JRS which reduced by -18.7%. However, DIAX, BXMX and SPXX did not cut, reflecting the slightly better performance of the Dow and S&P 500 indices vs. the NASDAQ and real estate over the past year.
BlackRock muni funds saw cuts across most of their lineup. This is simply due to the fact that nearly all muni CEFs are leveraged, and the rise of short-term rates will have increased funding costs, thus leaving less of the earnings left over the distribute (see Income Lab Ideas: Analyzing Fixed-Income CEF Distribution Sustainability ).
Strategy Statement
Our goal at the CEF/ETF Income Laboratory is to provide consistent income with enhanced total returns . We achieve this by:
- (1) Identifying the most profitable CEF and ETF opportunities.
- (2) Avoiding mismanaged or overpriced funds that can sink your portfolio.
- (3) Employing our unique CEF rotation strategy to " double compound " your income.
It's the combination of these factors that has allowed our Income Generator portfolio to massively outperform our fund-of-CEFs benchmark ETF ( YYY ) whilst providing growing income, too (approx. 10% CAGR).
Income Lab
Remember, it's really easy to put together a high-yielding CEF portfolio, but to do so profitably is another matter!
For further details see:
Weekly Closed-End Fund Roundup - March 5, 2023