Flight to Safety Benefited Government and Agency Closed-End Funds

The RiverNorth Closed-End Fund Index was down 1.9% on a price basis and 1.8% on a net asset value (NAV) basis in November. Closed-end funds sold off 5.5% midway through the month, as investors reacted to the ongoing debt crisis in Europe, but rallied 3.6% by the end of November as investor confidence returned.

Sector Round Up: In November, the best performing asset class in the RiverNorth Closed-End Fund Index was Government and Agency closed-end funds, which were up 1.7% in November and are up 10.2% year-to-date. Closed-end fund investors were so frantic to buy into the perceived safety of Government and Agency closed-end funds that the price outpaced the NAV by 1.97% in November, narrowing the discount 1.8%. Conversely, risk assets were the worst performers, specifically Non-U.S. Equities, Global Equity and Real Estate closed-end funds, as investors fled to perceived safe havens.

Noon-U.S. Equity Funds were down 5.5% in November, and are down 23.8% in 2011, representing the worst performing asset class year-to-date in the closed-end fund space. Real Estate, Global Equity and Convertible closed-end funds also performed poorly in November, all of which were down more than 4%. The behavior of Government and Agency closed-end funds versus higher beta peers represents the continued fear closed-end fund investors have about the world economy. With the global financial markets reacting to every headline coming out of Europe, closed-end fund investors will likely experience continued volatility.  

November IPOs: BlackRock Advisors, LLC launched the BlackRock Utility and Infrastructure Trust (BUI), which raised $310 million in its initial public offering. The BlackRock Utility and Infrastructure Trust’s investment objective is to provide total return through a combination of current income, capital gains and long-term capital appreciation. The Fund also plans on enhancing income through an option writing strategy.

In the overall closed-end fund market, the RiverNorth Closed-End Fund Index was down 1.9% as of November 30, 2011 and down 3.4% year-to date. Since the end of October, discounts have remained flat, narrowing only 0.1% and currently stand at 3.7% on average.

Patrick W. Galley is the Chief Investment Officer of RiverNorth Capital Management, LLC. an investment management firm based in Chicago. The firm specializes in quantitative and qualitative closed-end fund trading strategies and is the investment adviser to RiverNorth Funds.   

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