The NAVigator

John Cole Scott of Closed-End Fund Advisors, the founding chairman of the Active Investment Company Alliance, compares 2020 to unusual years from the past, looks at the best and worst performing investment areas for closed-end funds from this year and looks ahead at the opportunities ahead in 2021.

Andrew Kerai, senior credit strategist and portfolio manager at RiverNorth Capital Management, says that investors looking to improve fixed income returns should consider middle-market corporate credits and other issues in the private credit market, but he notes that investors should be attuned to downside risks, noting that they make more with a manager who does better avoiding defaults than with one who chases higher yield but takes on more risk.

James Clark, client portfolio manager at Nuveen Asset Management, says that real assets and infrastructure investments -- normally consistent, defensive investments -- have seen those appealing characteristics under attack because of the pandemic shutdowns, but he noted that Covid-19 tended to accelerate trends that were in place rather than disrupting those movements. With the development of a vaccine,he expects pricing to firm up as uncertainty starts to melt away -- 'the worst case scenario has been taken off the table for a lot of folks' -- but for those positive trends to continue, particularly in an area like industrial real estate.

Jonathan Browne, director of closed-end fund research at Robinson Capital, says that investors should be looking to closed-end funds to help solve the yield challenges they face today, when low interest rates have challenged the traditional 60-40 portfolio and when bonds have performed in lock-step with the stock market. While the industry keeps developing new and different investment solutions, Browne notes that closed-end funds are a more simple half-step toward alternatives that can be just as effective.

Rob Shaker, portfolio manager at Shaker Financial, says that the tax-loss selling season for closed-end funds should be particularly interesting in 2020, given the volatility funds saw throughout the year. That said, he anticipates that discounts will widen in December, making a good opportunity in closed-end issues look even better by mid-month, with the expectation of a January effect that will narrow the discounts back again in favor of investors.

Robert Bush, senior vice president and director of closed-end fund products at Calamos Investments, says that the benefits of closed-end fund investing have been on display this year in the rebounding stock market coupled with the low rate environment, because that low borrowing costs have helped funds profit from using leverage. He also discusses convertible securities, where many of the closed-end funds have not kept up with the underlying securities -- convertibles are up about 20 percent on average, he says -- creating particularly attractive opportunities now.

Brian Schaffer, managing director at Prosek Partners -- and the head of special situations for the public-relations firm -- discusses the changing face of shareholder activism for closed-end funds, and the role that communications has in helping investors measure the relative merits of any deal that pits fund management against shareholders making a move to take control.

John Cole Scott, chief investment officer at Closed-End Fund Advisors and the founder and executive chairman of the Active Investment Company Alliance does a quick 1-2-3 in this week's edition of The NAVigator, answering three questions from the audience and giving 2 ticker symbols worth following in one wide-ranging interview. He discusses the way discounts widen during bear markets, the expanded role closed-end funds could play in fixed-income portfolios looking for higher yields, and why he likes master-limited partnerships now.

Bryce Rowe, senior equity research analyst for business development companies at National Securities Corp., returns to the NAVigator to revisit business-development companies now. In his last appearance -- just days before the stock market bottomed out from its winter swoon and as the country was just entering the pandemic shutdown, Rowe said that beaten-down BDCs were a strong buy. Now, despite a solid run up along with the market, Rowe says that the bulk of business-development companies he watches -- and especially those focused on credit spreads -- remain worth buying, presenting both great value and strong upside potential.