From Quantitative Easing and Europe’s sovereign debt crisis, to the ‘Flash Crash’ and sluggish economy, 2010 proved to be an eventful year in the markets. For closed-end funds, too, investors had a volatile ride to the last.
Sector Round Up: We’re ringing in the New Year after a choppy end to 2010. Closed-end fund discounts widened out to -4.35% in mid-November, only to rally back to a -1.62% discount on Nov. 30. Within a couple of weeks, however, discounts widened back out to -4.87%, as of Dec. 14. Investment Grade, High Yield and Preferreds experienced the most widening since the end of November, widening out 7.62%, 7.55% and 6.28% respectively. Only two asset classes narrowed in that time period: Specialized Equity narrowed 0.64% and Non-U.S. Equity narrowed 1.39%.
Like the past month, discounts were volatile throughout the year, getting as wide as -5.86% and as narrow as -0.83% (both of which occurred in May). Over the past year, Investment Grade Bonds widened 9.20%, mainly in November and December, marking the most extreme change in closed-end fund discounts over the past year.
IPOs: 2010 was an up year for public offerings, with $5.9 billion raised through the third quarter of 2010, in addition to several issues occurring in the 4th quarter. That figure is up from $3.9 billion raised in closed-end funds in 2009, according to the Investment Company Institute.
Volume: Average trading volume of closed-end funds was approximately $565 million per day in 2010. This was a significant increase in volume from 2009, when closed-end funds traded $438 million per day. Much of this change can be explained by asset growth. Closed-end fund volume hit an all time high on May 6, 2010 – the day of the ‘Flash Crash,’ with approximately $2 billion traded.
Closed-end fund asset class market prices and net asset values were all positive for the year but their results were varied. Specialized Equity on a market price basis had the highest returns of all asset classes at 28.03% for the year, while Covered Call closed-end funds had the lowest returns at 3.25%.
RiverNorth Capital Management, LLC. is an investment management firm based in Chicago, IL. The firm specializes in quantitative and qualitative closed-end fund trading strategies and is the investment adviser to RiverNorth Funds.