The NAVigator

Mickey Schleien, managing director for equity research at Ladenburg Thalmann and Co, says that business-development companies have seen the rising interest-rate environment lead to higher yields, which has helped to offset declines in net asset value that BDCs have suffered as a result of the Federal Reserve's tightening monetary policy. He says that middle market companies have seen revenues and earnings grow about 11 percent at the start of this year, without endangering their distribution or suffering through a lot of defaults. Schleien says that BDCs have managed credit trends well enough to now represent an attractive opportunity even as the economy heads toward a recession and despite the sector broadly being fully valued.

Chris Marangi, co-chief investment officer for value at the Gabelli Funds, says 'the new normal' is one where inflation is higher than the Federal Reserve's target of 2 percent and growth is below trend, but it is creating an opportunity for active management to shine to find the opportunities that exist beyond the seven stocks that have been carrying the market to gains this year. He particularly likes the live-entertainment and sports-related businesses, and dislikes the path for banks where higher interest rates and a potential recession are pressuring balance sheets and the fallout from the spring's headline-making bank collapses is not yet played out.

Doug Baker, head of preferred securities at Nuveen, says that while it is relatively common now to find preferreds with yields above 7 percent, the real opportunity for investors at the moment comes from looking beyond the yield. He says that preferred prices right now are at 'meaningful discounts' that are uncommon in the preferred industry, creating attractive entry points, particularly on preferreds with adjustable coupon rates. He also discusses how the banking crisis, interest rate environment and inflation picture are impacting the preferred market now.

Rob Shaker, portfolio manager at Shaker Financial Services, says that economic conditions -- the debt-ceiling debate, troubled banks, higher interest rates and persistent inflation -- have created a situation where the market isn't climbing the proverbial wall of worry, but rather a 'Wall of Meh,' and says that there is opportunity in the unimpressive current conditions, noting that long-term investors in closed-end funds can use lagging investor sentiment to capture discounts as early as the second half of this year, when he expects a 'generalized recovery' from today's worrisome issues.

Duncan Farley, portfolio manager at BlueBay Asset Management -- which runs the BlueBay Destra International Event-Driven Credit Fund -- discusses how his fund produced a 20-plus percent gain during one of the worst years ever for the bond market, and how the fund can avoid regression to the mean thanks to market conditions -- buoyed by the changing interest rate environment -- that if properly managed have the potential to keep delivering double-digit returns.

Matt Freund, co-chief investment officer/head of fixed-income strategies at Calamos Investments, says he expects interest rates to settle in and remain stable for quite a while before trending down; he expects more volatility in longer-term bonds, which will make it harder for investors to get comfortable lengthening duration ahead of rate cuts that, under good circumstances, should arrive in 2024. Freund also discusses the private credit market, and Calamos' new closed-end interval fund, the Calamos Aksia Alternative Credit and Income Fund (ticker CAPIX), which just opened this week.

Jim Baker, managing partner and co-head of energy infrastructure at Kayne Anderson Capital Advisors, says that the energy transition -- the push away from traditional fossil fuels towards renewable sources -- will take decades, creating a long-term megatrend in the energy business. With the last few years of global turmoil highlighting the critical nature of energy and the importance of keeping supply levels appropriate, energy infrastructure companies are wide-moat businesses that should ride out any economic downturn comparatively smoothly while generating consistent income for investors.

Christian Munafo, chief investment officer, in Liberty Street Advisors, which runs the Private Shares Fund, says there are two stories dominating the private equity markets, with high-performing well-financed private innovation companies being proverbial unicorns compared to less- differentiated, less-capitalized companies which are more prone than ever to failure due to conditions in the capital markets. Rising rates have resulted in more opportunities coming to market, but have also made it harder for many firms to find the financing they need at reasonable levels.

Host Chuck Jaffe attended this week's Morningstar Investment Conference in Chicago and took the podcast with him, catching up with 'Super Mario' -- investment legend Mario Gabelli, founder of the Gabelli Funds, a long-tenured fan of closed-end funds, who discusses the pros and cons of the closed-end structure, especially as it relates to the Gabelli Equity Trust and the 10 percent payout he has made a cornerstone of the fund's investment policy.

Roxanna Islam, associate director of research at VettaFi, says that exchange-traded funds that invest in closed-end funds give investors diversified portfolios -- and all the benefits of investing deeply in the closed-end space -- in a one-stop shopping wrapper. Islam says that investors worry about high fees in ETFs of closed-end funds, noting that CEFs tend to have higher expense ratios on their own, and the added layer of costs for the ETF sponsor can feel heavy, but she notes that fund sponsors recognize the issue and tend to keep the additional costs low. Meanwhile, ETFs covering nearly all style boxes and assets of the closed-end universe can provide diversification and professional management, and she provides examples of ETFs for listeners to consider.