June 17, 2011

Closed-End Fund Investors Still Wanted Fixed Income in May

 

The RiverNorth Closed-End Fund Index boasted a 0.19% return in May, although positive performance trends across all asset classes that began last June seem to have crested. Equity markets sold off both in the U.S. and internationally, while equity closed-end fund discounts remained relatively stable.  Closed-end fund investors continue to clamor for fixed-income funds, narrowing discounts across most fixed-income asset classes, while NAV’s show little movement.

Monthly Sector Roundup
Multiple fixed-income asset classes
in the RiverNorth Closed-End Fund Index did well in May, despite equities showing signs of weakness after a two-year rally. And although Non-U.S. Equity closed-end funds prices remain up 24.97% over the past year, they were hit hard in May, dropping 4.42%.                         

Specialized equity funds, which target investments in natural resource and infrastructure companies, were also down in May, turning in a negative 3.59% performance. And while equity closed-end fund prices had a down month, discounts held steady, with NAV’s chiefly responsible for the recent losses.

Fixed-income closed-end funds did well during the month. Preferred and high yield closed-end funds spiked 4.20% and 3.75% respectively, primarily due to narrowing discounts, with preferred closed-end funds narrowing 2.35% and high yield closed-end funds narrowing 4.54%.

Montly Closed-End Fund IPOS
Nuveen
launched the Nuveen Short Duration Credit Opportunities Fund (JSD), in an IPO that will raise $200 million. Targeting a blended portfolio of below-investment grade adjustable rate corporate debt instruments, the Fund will also tactically invest in other types of debt instruments.

John Hancock launched the John Hancock Hedged Equity & Income Fund (HEQ), in an IPO that will generate $280 million.  The Fund seeks current income and gains through a portfolio of equity securities, while utilizing an options strategy.

The Monthly Numbers
In the overall closed-end fund market, the RiverNorth Closed-End Fund Index was up 0.19% as of May 31, 2011 and 7.33% year-to date. 

Since the end of April, discounts have narrowed 1.26% and currently stand at 2.19% on average.

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