INSIGHTS

On May 11, 2016

Renewed Focus on Closed-End Funds (CEFs)

Listen to the full podcast

Read the transcript

• Markets need a catalyst to move higher, but with 80% of S&P 500 companies already reporting first quarter results, earnings growth as a catalyst looks to still be over the horizon.   

• Channelized market movement over the last 18 months, however, indicates investors continue to believe earnings growth will occur, with projections exceeding 13% for the next year.

• We don’t believe there will be a U.S. recession in the near-term, as mixed data indicates solid, albeit not great, economic underpinnings remain in place.  

• Markets are predicting the next move by the Federal Open Market Committee (FOMC) won’t be until early 2017, although we at AAM believe there may be one more rate increase in 2016. Regardless, rates will likely remain stubbornly low for the foreseeable future. 

• We believe investors should take a closer look at CEFs, which continue to be offered at attractive discounts to net asset value (NAV). CEFs, on average, have broken out of their extended two-year sell-off, bottoming in mid-January with additional tailwinds including low borrowing costs, low default rates and limited new supply.

• Despite the recent considerable move higher, we still see a lot of value and opportunity in CEFs and believe investors should focus on those CEFs with the steepest discounts to NAV and best potential for NAV appreciation. 

CRN: 2016-0509-5351 R

All investments involve risk; loss of principal is possible. Past performance does not guarantee future performance. It is not possible to invest directly in an index.



Closed-End Funds Investment: Risks include higher interest rates, economic recession, deterioration of the bond and equity market, possible downgrades, early call provisions, changes to the tax status of the bonds and defaults of interest and/or principal. Shares of closed-end funds are also subject to various risks, including management’s ability to meet the fund’s investment objective, and to manage the fund’s portfolio when securities are redeemed or sold, during periods of market turmoil and as investor perceptions regarding the funds or their underlying investments change. In addition, closed-end funds frequently trade at a discount to their net asset value in the secondary market. This podcast and transcript are provided for informational purposes only. It is not an offer or solicitation of an offer to buy or sell any product or service. Unless otherwise stated, all information and opinions contained in this publication were produced by Advisors Asset Management, Inc. (AAM) and other sources believed by AAM to be accurate and reliable. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions as of the taping date of the podcast and are subjec­t to change without notice. All AAM employees, including research associates, receive compensation that is based in part upon the overall performance of the firm. AAM may make a market in or have other financial interests in any given sector or security with which this analysis suggests may be benefited from its conclusions. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.

Index Definitions: ISE High Income Index is comprised of 30 closed-end funds (CEFs) ranked highest overall by the ISE in three criteria: fund yield, discount to net asset value and liquidity. S&P 500 Index is an unmanaged market capitalization weighted index used to measure 500 companies chosen for market size, liquidity and industry grouping, among other factors. It represents approximately 80% of available market capitalization. Not FDIC Insured. Not Bank Guaranteed. May Lose Value.

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at https://www.aamlive.com/legal/commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.