The NAVigator

Cheryl Pate, senior portfolio manager at Angel Oak Capital -- co-manager of the Angel Oak Financial Strategies Income Term Trust (FINS) -- says the banking industry's wild ride since the failure of Silicon Valley Bank in March has created "a market dislocation" in pricing for bank equities and debt, which has created a strong opportunity for bank debt to outperform moving forward. Pate notes that the banking industry has quelled fears over failure contagion, the Fed is nearing the end of the rate-hike cycle and deposits have stabilized. Banks have proven resilient and posted solid earnings, which should combine to create stronger results as the rebound from last March continues.

John Cole Scott, president of Closed-End Fund Advisors -- the chairman of the Active Investment Company Alliance -- digs into his data to give a recap of the third quarter for the closed-end fund industry, noting that municipal bond funds and REIT funds particularly took it on the chin, with the entire categories being down during the period by 10 and 7 percent respectively. Business-development companies were the top category based on average returns, but senior loan funds were the can't-miss asset class, with all of the funds there being up in the third quarter.

Roxanna Islam, head of sector and industry research at VettaFi, says that cautious retail investors have been looking for safety and yield and that while closed-end funds have traditionally filled that bill, investors in ETFs that buy closed-end funds have been avoiding a lot of the struggles by turning elsewhere to invest. She believes that could be changing, however, as investors recognize the bargains that closed-end funds represent, particularly in ETFs of CEFs, where investors get diversification at a reasonable price.

Robert Bush, director of closed-end products at Calamos Investments, says that with risk-free money from bank accounts and Treasury bonds at high levels -- and with leverage costs up in response to those higher rates -- investors can have a lot of choices for good income without ever considering closed-end funds. But with the average closed-end fund discount widening from roughly 8 percent at the start of the year to nearly 10 percent today, closed-end investors are likely to be rewarded for their patience. Bush also discusses how CPZ, the Calamos Long/Short Equity and Dynamic Income Trust, has navigated these challenging conditions to be better positioned regardless of how the market plays out from here.

Duncan Farley, portfolio manager for BlueBay Asset Management -- manager of the BlueBay Destra International Event-Driven Credit Fund -- says that the rising cost of capital for businesses and interest rates that are staying higher for longer is creating more "special situations" opportunities and that it's not too late for investors to take advantage of those credits despite several years of strong performance in the event-driven credit arena. He noted that it's easy to shake off common worries over defaults rising when interest rates go up by buying paper as close as possible to the recovery value. His fund has largely avoided trouble -- as proven by Morningstar placing it at the very top of its peer group over its five-year existence -- and he believes it can continue to deliver strong results because good opportunities are easier to find in worrisome market conditions, though he says finding them requires more due diligence.

John Cole Scott, president of Closed-End Fund Advisors -- and the chairman of the Active Investment Company Alliance -- returns to The NAVigator noting that the discounts on muni funds have continued to get wider. He notes that the average discount for a closed-end muni fund stands now at 12.5 percent compared to their 10-year average of just under 5 percent, and talks about what is discouraging investors from heading into m unis now. He also compares muni funds to BDCs and discusses how investors should size-up current risks in credit before ramping it up in their portfolio. Plus, he discusses AICA's upcoming Fall Roundtable in New York.

Colin McBurnette, senior portfolio manager at the Angel Oak Funds, says that while high-rate and high-inflationary conditions have made a lot of investors worry about the housing market, those conditions -- along with wide spreads and low housing stocks creating an imbalance in the supply-and-demand dynamic -- have created real opportunities in the space. The tight market has made the housing market of mortgage credit particularly robust, with strong borrowers as the rate cycle is likely to turn soon; he says the housing and mortgage markets are much more robust now than the corporate credit market in the U.S.

Mitchel Penn, managing director of equity research at Oppenheimer and Co., says that higher interest rates and stubborn inflation have impacted business development companies in terms of both defaults and leverage, but he notes that BDC executives have taken steps to minimize the impacts. Moreover, current conditions should have BDCs primed for better returns than they could deliver during low-rate times; Penn also names five BDCs worth considering now.

Veteran money manager David Tepper, president of Tepper Capital Management, looks at four of the oldest closed-end funds -- Adams Diversified Equity, Central Securities, General American Investors and Tri-Continental -- that he has owned for decades, but which remain relevant and effective today, and which are trading at attractive discounts now.

John Cole Scott, president, Closed-End Fund Advisors -- chairman of the Active Investment Company Alliance -- discusses portfolio construction and the many factors that go into a diversified safe and solid separately managed account with closed-end funds and business-development companies as the primary focus. He details a diversified tax-sensitive income fund, discussing the many factors that went into selecting each security for it, and how his focus on certain key elements excludes some securities that other closed-end investors might gravitate towards. Plus, a tribute to the late Don Cassidy, best known for his time at Lipper and the Retirement Investing Institute.