The NAVigator

It's the 100th NAVigator podcast, and John Cole Scott, chief investment officer at Closed-End Fund Advisors and the executive chairman of the Active Investment Company Alliance returns to discuss narrowing discounts and why investors shouldn't wait for them to widen before investing, developments in the closed-end business, the state of closed-end funds now and a few funds worth considering for the second half of 2021.

Portfolio manager Rob Shaker of Shaker Financial Services returns to The Navigator, having been a happy camper when discounts grew massive at the start of the pandemic, and having been more circumspect as they narrowed late in 2020. Now, he's seeing pockets of opportunity, looking for relative bargains and watching to see whether closed-end funds now are repeating their pattern from the financial crisis of 2008, when discounts got huge, then tightened up, then struggled during the "taper tantrum" reaction to Federal Reserve efforts in 2013. He's watching the Fed -- and the market's reaction to it -- now to see if history will repeat for closed-end investments.

Daniel Ashcraft, portfolio manager for Gateway Investment Advisers -- part of the firm's team responsible for running the Nuveen S&P 500 Buy-Write Income Fund -- says that with volatility on the rise and likely to stay that way, covered-call strategies are headed for a period that should be ideal, where they can deliver their 'bread-and-butter' of lower-volatility exposure to the markets with attractive risk-adjusted returns.

Bob Long, chief executive officer at Conversus, discusses how 'tender funds' give investors access to private markets, which creates improved diversification and generates an investment premium. Long discusses the pros and cons to the fund structure, as well as the challenges of evaluating the funds given the absence of ratings and rankings for the funds.

Randy Anderson, chief executive officer at GC Asset Management and portfolio manager for the Griffin Capital Institutional Access Real Estate fund says that the bad headlines the real estate market got during the coronavirus pandemic have not materialized as expected, at least where institutional real estate (high quality properties/investable markets), noting that the market has largely recovered and are now showing new opportunities ahead. That said, he noted that there will be heightened volatility, which is countered particularly well by interval funds, which themselves have limited liquidity helping shareholders ride out the bumps.

Eric Boughton, chief analyst at Matisse Capital and portfolio manager for the firm's closed-end strategy funds, says that since taking a beating during the 2020 pre-pandemic market meltdown, closed-end funds have rebounded to where discounts on average are now 3 percent, compared to a long-term average discount of 5 percent, making this 'a less-than-average time to invest in closed-end funds from a discount perspective.' Still, he noted that there are sectors and industries that remain cheap, and he highlighted master limited partnerships, noting that the median discount for the sector is currently 16 percent, compared to the average of 6 percent over the last 15 years. In this NAVigator bonus -- originally broadcast as the Money Life Market Call with host Chuck Jaffe -- Boughton also discusses the prospects of some individual funds.

Mark Asaro, director of investments for Noble Wealth Management, says that investors who are staring down low interest rates that have them questioning the classic, traditional 4 percent 'safe withdrawal rule' should be looking at closed-end funds to bolster returns and to act as a paycheck-replacement, providing steady income that -- when applied tactically -- should weather changing inflation and interest-rate conditions.

Mike Taggart, founder and chief executive at Taggart Fund Intelligence -- a new analytical firm being built to cover closed-end funds -- says that individual investors and financial advisers should move away from their obsession over discounts in closed-end funds, noting that total return and other factors drive long-term satisfaction with a closed-end fund investment. He discusses the factors he is focusing on -- and that he thinks investors should be looking for -- as well as the need for independent fundamental analysis of closed-end offerings that he feels the industry currently lacks.

John Cole Scott, chief investment officer at Closed-End Fund Advisors and the executive chairman of the Active Investment Company Alliance, says that with strong recent performance, 'getting big fat discounts continues to be hard,' but he says that shouldn't dampen enthusiasm for closed-end funds and business development companies. He cites opportunities in energy, real assets and real estate funds and notes that narrower discounts make this a time to consider non-listed funds, which tend to be less levered and volatile in the choppy market conditions we're likely to see moving forward.