Business-development companies saw their share prices get hammered early this year as the market worried about an overexposure to parts of the software industry that could be negatively impacted by artificial intelligence. John Cole Scott, President of CEF Advisors, looked at BDC data before and since those problems and says it appears that fears of A.I. risk were exaggerated since "We're still not seeing software blowing up BDCs." Scott, who also serves as chairman of the Active Investment Company Alliance, thinks it may take another two quarters of data to confirm that trend, but he says that BDCs have not seen a dramatic rise in non-accruals or "exacerbated losses ... in a material way," with research showing the a lot of the most severe issues were isolated in "the bottom cohort" of BDCs, the outliers with the most exposure that made headlines amid the software downturn early this year.

Rob Thummel, Senior Portfolio Manager at Tortoise Capital, says that for all of the power needs created by artificial intelligence, producers still need their power costs to be reasonable, and he expects that natural gas will lead the way going forward. Thummel, who runs Tortoise Energy Infrastructure fund, says current conditions for energy infrastructure remain the most favorable he has seen in 30-plus years as a portfolio manager, largely because energy is "the foundation of the A.I. five-layer cake" famously described by Nvidia president Jensen Huang. Thummel says that while investors have been light on energy allocations historically, this would be a bad time to be underweight energy, because positive conditions are setting up tailwinds that could last for years.

Treasury rates hit their highest level in nearly 20 years this week; in response, the Treasury announced it was doubling its long-end buyback capacity. John Cole Scott, President of CEF Advisors, discusses what it all means for fixed-income markets and how it is impacting closed-end funds and their investors. The two actions at the center of the action call for a barbell approach, says Scott, who serves as chairman of the Active Investment Company Alliance; for the time being, however, it, noting that at least for the time being it is more about portfolio tilts and mild changes than an overhaul or a big buying opportunity.

When closed-end funds catch mentions in the mainstream media, the recommendations often focus on yield without digging deeper. In this episode of The NAVigator, John Cole Scott, President of CEF Advisors, looks at some recent closed-end fund recommendations from articles on Forbes and Seeking Alpha, and breaks down how those funds do through the "trifecta analysis" his firm uses to select funds, pointing out the shortcomings of using a rigid criteria or focusing on partial information to make decisions. Scott, who also is the chairman of the Active Investment Company Alliance, offers suggestions for what he would use in portfolios in place of the media recommendations.

Discount-capture investor Rob Shaker, Portfolio Manager at Shaker Financial Services, says that while closed-end fund discounts have widened through a strong season of earnings and a market returning to flirt with new highs, much of that action has been "good widenings," where a fund's net asset value goes up more than the price of the closed-end fund itself. With the market "snapping around" with heightened volatility, Shaker says that the indexes have been pulling up faster than closed-end funds can move, creating attractive buying opportunities. While liking that potential for gains, Shaker says that closed-end funds generally "have been pretty laid back," without much fear but also without much optimism, even as the market has resumed its climb higher.

Scott Caraher, Head of Senior Loans at Nuveen, says that the higher-for-longer interest rate environment has created "one of the most interesting and dynamic times" he has seen for senior loans in his 25-year career. Caraher, who manages Nuveen Floating Rate Income in both its closed-end and open-end forms, says that because senior loans don't face interest-rate risk, they are a powerful play in a market where Federal Reserve policy on rate direction is uncertain, noting that it's possible to create strong portfolios yielding about 7 percent, which he called "incredibly attractive ... on both an absolute and relative basis."

John Cole Scott, President of CEF Advisors, provides takeaways from the second quarter for closed-end funds and business-development companies, noting that the trend was for investors to make most of their money on net asset values rather than narrowing discounts, which creates potential for a strong second half of 2026 if there is an uptick in investor sentiment. Scott, the chairman of the Active Investment Company Alliance, brought forward data from his firm's quarterly outlook presentation this week, noting that it shows that while headline risks have hurt BDC prices, underlying strength should make for a strong rebound later in the year, particularly as the actions of the Federal Reserve become more clear.

Ray DiBernardo, Portfolio Manager for the XAI Madison Equity Premium Income fund, says he's concerned about the market's valuation levels — noting that it "has been expensive for quite some time" — and while he is not expecting "dark clouds and a horrible environment," there's more downside risk, which could lead to market compression that puts covered-call strategies back into the spotlight as a defensive play. DiBernardo, an analyst at Madison Investments, says the proliferation of options strategies should make investors more diligent about exploring strategies, and he discusses single-stock options versus index options and the risk-reward picture with each. DiBernardo notes that covered-call strategies aren't right for people "who believe the market will keep going straight up from here," but he notes that for nervous investors, the options strategy acts like portfolio insurance and the discount on a closed-end fund can help to make up for the upside potential that the strategy trades for that protection.

Axel Merk, President and Chief Investment Officer at Merk Investments, discusses Saba Capital's activist campaign that got him ousted as portfolio manager and president of ASA Gold and Precious Metals Ltd., a closed-end fund that was up nearly 200% last year but that still was branded with the label of being a "poor performer." Merk, who took over the closed end fund in 2016 and helped to nearly quadruple its assets in the last decade, says new management has no experience running a gold fund, and is only interested in narrowing the discount and generating fees for itself. He filed with the Securities and Exchange Commission and made other efforts to save the fund, but says any form of salvation is unlikely at this point. He also discusses prospects for the gold market, which has cooled significantly this year.

Kevin Dreyer, Co-Chief Investment Officer for value at Gabelli Asset Management, says that there are plenty of values left in a market that has returned to record levels, particularly when valuing stocks based on "what an informed industrialist or buyer would pay to buy the whole business." Dreyer, part of the team running Gabelli Equity Trust and some of the firm's other closed-end funds, says that finding businesses that are "A.I. resilient" and able to withstand and/or benefit from the development of artificial intelligence is important now, and he noted that sports teams are a big draw in that regard because " You can't have an algorithm or chatbot replicate the New York Knicks … but you and I can go out and buy MSGS, which owns the Knicks."