Explore every episode of the podcast The NAVigator

Richard Stone, Chief Executive Officer for The Association of Investment Companies (the British equivalent to the Active Investment Company Alliance), discusses differences in the activist investor cultures in the United States and Great Britain, noting that the British model is more about engagement with the board and a collaborative effort to improve the business, while the U.S. model has shifted towards an entrenched fight to make change and capture opportunities. With Saba Capital emerging as the leading activist on both sides of the pond, Stone discusses how he sees activism continuing to change. In addition, he discusses how interval funds are viewed in England, and whether "venture capital trusts" (the country's tax-advantaged alternative to business development companies) could work in private credit markets globally.

Bryce Doty, senior portfolio manager at Sit Investment Associates, says that "every time a new Fed chair comes in, they do something dumb," and with Jerome Powell on his way out as the chairman of the Federal Reserve, he expects some chaos that will create opportunities, potentially as soon as the next chairman of the central bank is announced. "The interpretation — and mis-interpretation — of what's going to happen is going to be crazy," Doty says, but that "complete mess" should create opportunity that turns out well for investors who ride it out and who "don't expect logic and reason to rule the day, at least for a quarter or two." Doty also talks about where he is moving money during tax-loss selling season and the changing discount picture as the market has returned to record highs.

Discount-capture investor Rob Shaker, Portfolio Manager at Shaker Financial Services, says that he's "not seeing anything in the closed-end fund space that would point to any type of bubble conditions." He sees generic, slow widening of discounts happening now, mostly due to a mix of year-end tax-loss moves starting now and some fund-specific actions, rather than because investors have lost faith and courage in current market conditions. Still, Shaker does see potential market storms coming and he says investors should make sure they are comfortable that they can weather those flurries "and readjust to the better things that are on sale and then double-collect on the way up." 

Cory Johnson, chief executive officer at Pender Capital -- which runs the Pender Capital Real Estate Credit Fund, a closed-end debt interval fund -- says that there's "an abundance of very interesting opportunities" as the commercial real estate market goes through big changes as regional banks pull back from the sector and reduce liquidity for borrowers. The result is "a kind of a hey day ... the most attractive risk-adjusted yields we have seen since the financial crisis [of 2009], borrowers buying at discounted valuations, looking for debt providers." He says the continued challenges for commercial real estate should keep providing good, safe opportunities for investing in senior-secured debt amid continuing headline woes.

Matt Kaufman, head of ETFs at Calamos Investments, says that years of experience running separately managed accounts of closed-end funds plus the firm's experience running closed-end funds -- as well as an investment environment where a fund that focuses on discounts had lots of investment prospects -- were part of the firm's thinking behind its new Calamos Closed-End Fund income and Arbitrage ETF which launched in January. While the fund is shopping for discounts in closed-end funds that are outside of the Calamos family, Kaufman said it will not be an activist investor in trying to narrow those discounts.

John Cole Scott, president of Closed-End Fund Advisors -- chairman of the Active Investment Company Alliance -- looks at two asset classes that investors are turning to now for yields. While business development companies and municipal bond closed-end funds have low correlation, investors are looking at both asset types in order to raise yield levels in this market. Scott digs into his firm's data to examine where the two asset classes stand and offers a few picks in each sector that he thinks are poised to handle the changing rate picture well for at least the rest of the year.

Dana Staggs, president of ArrowMark Financial Corp. -- a non-diversified, closed-end fund that trades under ticker symbol BANX -- talks about why the fund has changed in recent years to where 87 percent of its holdings are now in regulatory capital relief securities, and what that esoteric asset can add to a diversified portfolio. Staggs also discusses his outlook for banking -- where he acknowledges the potential for troubles but says they should not be systemic, disruptive problems -- and how reg-cap securities are set up to weather the potential storms.

Jonathan Mondillo, head of North American fixed income for abrdn, says the municipal bond market has been looking at a "teacup inversion," and as that changes when the Federal Reserve cuts rates later this year, it should set up well for a barbell approach, with the bargains and values being at the short and long ends of the curve. He notes that the last 12 to 18 months have been hard for muni debt and closed-end funds in general, but that with rates having come to a peak, there is now real opportunity in repositioning a portfolio, with record discount levels holding out potential for attractive income levels and heightened total return for investors willing to swim against the tide.

Ian Merrill, president of SCG Asset Management -- which runs The Alternative Strategies Income Fund, a continuously offered closed-end interval fund -- says that investors can change the risk-reward picture in equities by using derivatives to reduce risk but also set up the potential for higher income. He suggests that using derivatives allow a classic 60-40 balanced investor to go to 50-30-20, with derivatives representing the last part of the allocation and generating returns that normally would require a lot more equity exposure. Merrill says that the explosion in derivative products -- driven in part by the success of defined outcome ETFs -- makes it incumbent on investors to avoid confusion and make sure they know the investment intentions are for any manager using derivatives.

Roxanna Islam, head of sector and industry research at VettaFi, digs into the active and passive exchange-traded funds that invest in closed-end funds, looking at the choices, the new funds and the options investors have for buying ready-made portfolios of closed-end funds thanks to the simplicity of ETFs versus the chores of building their own portfolios. She notes that the active ETFs have some potential that the index-oriented versions have seemed to be missing in current market conditions.

Cheryl Pate, senior portfolio manager at Angel Oak Capital and manager of the Angel Oak Financial Strategies Income Term Trust, says that 2024 "will bring a still somewhat tough operating environment for the banks but net interest margins are abating, valuations are cheap and [mergers and acquisitions] activity should accelerate from here." That gives banks an attractive opportunity set, particularly by focusing on credit quality and looking for "a fundamental mispricing of bank debt" that is creating some compelling bargains for investors.

Aaron Filbeck, managing director at the CAIA Association -- industry association for Chartered Alternative Investment Analysts -- says that the evolution of alternatives over the last few decades has made it to where it's naive for investors to effectively lump the wide range of investment options under the simple label of "alternatives." Filbeck, who oversees UniFi by CAIA -- a platform that educates private wealth managers about alternative investments -- says that sophisticated investors look past the label to dig into the different risks and return profiles of assets that vary from hedge funds to private credit, real estate, commodities, infrastructure and more, but he notes that they also have a long way to go with alternatives which still represent a small percentage of investors' portfolios despite the wide range of assets available.

John Cole Scott, president of Closed-End Fund Advisors -- chairman of the Active Investment Company Alliance -- does his annual forecast for the year ahead, noting that he expects closed-end funds to outperform the general equity markets, and he expects a mild narrowing of discounts from current average levels of roughly 7 percent, noting that bond funds should benefit from changing interest rates. He also looks at shareholder activism, yields and more, before picking a few funds that he expects to be stellar performers in the new year.

John Cole Scott, President of CEF Advisors, discusses the changing landscape of business-development companies and the details he gleaned from attending the recent Eversheds BDC Roundtable, which focused on legislative and other issues that are creating challenges and opportunities for the industry. Scott, the Chairman of the Active Investment Company Alliance, weighs in on the potential for changing quarterly reporting requirements, the impact of easing restrictions of holdings for retirement plans and more.

John Cole Scott - president of Closed-End Fund Advisors and the chairman of the Active Investment Company Alliance - looks back at how the closed-end fund industry bounced back from the challenges of a terrible year in 2022, and how his forecasts from a year ago played out. He came out on the winning side of the ledger in his forecasts, but especially with his basket of five funds selected as likely winners for 2023.

Brenda Langenfeld, lead portfolio manager for the Nuveen Preferred and Income Opportunities Fund and the Nuveen Variable Rate Preferred and Income Fund, says that conditions are favorable on a number of different levels, setting up preferred securities for a strong year ahead as interest rates move lower in the year ahead. She noted that heightened banking regulatory oversight will be favorable for credit investors, that positive fundamentals suggest stability and growth and that valuations are at levels "that present a capital appreciation opportunity over the next year."

Adam Sparkman, client portfolio manager at Thornburg -- part of the team running TBLD, the Thornburg Income Builder Opportunity Trust -- says that current market conditions favor the flexibility of a multi-asset approach, noting that  "it's a different menu within fixed income entering 2024 than it was a couple of years ago." The changes in the rate environment have allowed the firm to increase credit quality. "We're taking less credit risk and we're looking to add a bit of duration," Sparkman says. On the equity side of things, Sparkman says international investments -- especially in Europe -- are trading at relative discounts, making them particularly attractive now.

Mike Taggart, closed-end fund specialist at abrdn, says that the overwhelming majority of closed-end funds were created to generate income -- and built with that in mind -- but that the sector gets a lot of its attention as the result of discounts, and he feels the discount angle is "overplayed," because the investor who focuses on the income gets the discount as a bit of extra yield but the person who wants to capture the discount needs to ride out the market's bumps and bruises to hang on hoping to see the market change and narrow the bargains. Taggart, formerly executive director of the Active Investment Company Alliance, talks deals, discounts and more and how current market conditions are impacting closed-end fund investors.

Axel Merk, chief investment officer for the ASA Gold and Precious Metals fund, says that gold prices are most tightly correlated to "the confidence the market has in the central bank to manage inflation over time," so gold's rally over the last six weeks -- as well as its path forward -- is "favorable because we might be entering a recession, most notably a recession that is more severe than is currently priced into the market." Merk says he does not foresee a soft landing for the economy -- he sees a decline that is more significant than most observers are expecting -- which is why he does not think "we are going to have the trajectory [for gold] that is priced in right now."

John Cole Scott, president of Closed-End Fund Advisors and the chairman of the Active Investment Company Alliance, tackles the biggest shopping day of the year closed-end fund style, talking about where discounts stand in general for the industry, but also hunting for year-end bargains and looking at three cases to determine whether the Black Friday sale on the fund is a real deal, an average play or a fake-out.

Bryce Doty, senior portfolio manager at Sit Investment Associates, says that muni-bond closed-end funds using leverage -- where the cost of their borrowings are effectively wiping out returns given current conditions -- are more interested in keeping fees high than making money for shareholders, which is one reason why his firm has become a more activist shareholder. With the average muni-bond discount at roughly 13.5 percent -- more than three times its historic norms -- Doty says it should be easy for shareholders to narrow the discounts and turn profits, but it will require the Federal Reserve cutting rates and/or fund managers selling losers and reducing the negative carry of their leveraged positions.

Eric Purington, portfolio manager for the Aberdeen Global Infrastructure Income Fund, says that two mega-mergers outside of the infrastructure space -- deals involving upstream energy giants Exxon and Chevron -- have a lot of implications for middle-market/midstream energy companies and infrastructure stocks. Purington says that the larger energy companies are now poised to make big investments, which will trickle down to infrastructure and services companies, but adds that these big deals have opened the door to other mergers at all levels of the industry, which should make for opportunity ahead. Says Purington: "With the leaders in the space doing it, that is going to work it's way down."  

Steven Perry, vice president at XA Investments, discusses the surge in activity and creation for non-listed closed-end funds, covering why money managers, including a number of prominent sponsors who have never been in the space before, are turning to the products now and how investors can use the new issues to access additional asset classes.

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.

Drake Hicks, Head of Impact Investing at Variant Investments, discusses the unusual intersection of closed-end funds with impact investing, which goes beyond ESG (environmental, social and government principles) to invest in projects which have a purpose beyond just a profit margin. The firm runs the Variant Impact Fund, a high-yield closed-end interval fund whose assets are aligned with the United Nations' sustainable development goals, and Hicks talks about how shareholders benefit from the interval structure.

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.

In a bonus episode of The NAVigator, John Cole Scott, president of Closed-End Fund Advisors and the  chairman of the Active Investment Company Alliance, discusses the historic level of deep discounts he is seeing in closed-end funds, and how that translates to buying opportunities now. Closed-end funds have seldom seen bigger discounts in the last quarter-century, Scott said, and says the current level of yields are helping to confirm the current opportunity, despite the beating that closed-end funds took a year ago. 'Buying after carnage is such a good closed-end fund decision,' Scott says.'You should be uncomfortable with the last three to 12 months of the fund you are buying today, because if it looks bad, it should look better later.'

Ray DiBernardo, Portfolio Manager of the XAI Madison Equity Premium Income fund, says that covered-call strategies have become increasingly popular of late, as investors want to goose income while reducing market risk. DiBernardo, an analyst at Madison Investments, notes that investors have been intrigued by covered-call strategies for about two decades, but the availability of more options-based strategies through the advent of ETFs has made investors more aware of how to find income-enhancement through covered calls. DiBernardo, notes that covered call strategies did well in 2022, when the overall market was struggling, which also has increased their use as a hedge against market risk with the market trading at record highs.

Christian Munafo, chief investment officer at Liberty Street Advisors -- which runs the Private Shares Fund -- says that the perceived higher risks in challening environemnts like the one we are facing today often lead to attractive opportunities and oversized future gains, which makes current conditions attractive for private equity and venture capital investing. Munafo notes that private markets are more stable than their public counterparts, but signs of improvement are there now, leading him to believe the asset class will see better relative performance moving forward.

Scott Caraher, head of senior loans at Nuveen -- manager of the Nuveen Floating Rate Income fund -- says that the higher-than-expected increase in rates that has driven up borrowing costs has made credit selection 'more important today than it has ever been.' He notes that lower-rated companies can't sustain high levels of interest payments for long levels of time. As a result, Caraher says he is underweight the lower-quality part of the market, wary of a pick-up in default rates; the flip side of the situation is an opportunity to overweight better-quality companies which are generating superior returns now and which will be more stable and solid whenever the Fed starts cutting rates int he future.

Chris Oberbeck, chairman and chief executive at Saratoga Investment Corp., says that the balance of power in the lender-borrower relationship has shifted dramatically in the last 12 to 24 months, with banks now pulling back which is leaving private lenders with better terms and more power to insist on superior deals. Oberbeck notes that those conditions are putting BDCs generally -- but Saratoga specifically, thanks to an all-weather portfolio of loans -- in a better position to minimize any damage that might be done if the economy goes through a recession.

Josh Duitz, head of global income at Abrdn -- manager of the Aberdeen Global Infrastructure Income Fund -- says that private infrastructure investments have attracted so much money that valuations have gotten off-kilter, creating an 'illiquidity premium' that 'makes no sense.' Duitz explains that publicly listed companies should have higher valuations  -- because investors value the liquidity and ability to trade them easily -- meaning that current conditions are making public infrastructure investments particularly attractive right now. Duitz -- who says that politics isn't likely to impact infrastructure as much as headlines suggest -- makes a broad case for infrastructure investing now, but particularly likes the renewable space.

Eric Boughton, chief analyst at Matisse Capital and portfolio manager for the Matisse Discounted Closed-End Fund Strategy, says that while the stock market has roared this year, things haven't changed much with the closed-end fund space this year, meaning there are plenty of highly discounted issues, particularly in muni bonds and some other fixed-income spaces, as well as international funds. He notes that many closed-funds that were good deals based on discounts a year ago haven't narrowed those bargains but now deliver improved yields, which is why he is buying certain issues now 'hand over fist.'

Mark Asaro, director of investments at Noble Wealth Management, says investors should not think that a traditional open-end mutual fund is a good replacement for individual bonds. Without a maturity date, bond funds don't have the pull toward par of an individual bond. Closed-end funds, however, are immune to dilution from cash flows into the fund, thereby providing a stable yield that investors can bank on, making them a better portfolio mix with individual bonds. Asaro notes that closed-end bond funds work best when the yield curve is upward sloping -- as opposed to today's heavy inversion -- but notes that there are selective opportunities looking strong now, notably in funds which buy municipal bonds.

Kenneth Burdon, an attorney in the investment management group at Skadden, Arps, Slate, Meagher and Flom says that rules proposed by the Securities and Exchange Commission that would dramatically change liquidity requirements on traditional mutual funds could result in a boom for interval funds. While noting that the proposals still have a ways to go before approval, Burdon says that they would, if passed, make it so that many bank loans and other 'less liquid securities,' couldn't be held in traditional funds. Some funds may convert to closed-end status, he says, while other firms will plan more interval offerings if the rule passes.

Kimberly Flynn, managing director of alternative investments at XA Investments, says that demand for alternative investments as a means of adding diversification to a portfolio has spurred tremendous growth in interval funds, whose limited liquidity makes them an ideal vehicle for many types of less-liquid securities. Flynn notes that there are 190 interval- and tender-offer funds in existence today, but that 27 new funds are in registration, many from companies just entering the interval-fund space. Flynn says it's still very early -- 'maybe the second inning' -- in the current interval-fund growth cycle, which will force investors and advisers to do heightened due diligence to make sure the new issues can perform up to expectations.

John Cole Scott, president of Closed-End Fund Advisors, discusses what he is seeing in the market now by delving into four of the investments he is using the most and weighing heavily in client portfolios. He notes that the recent bank collapses actually made a few of his favorites more attractive -- because the market got angry at the financial sectors, driving prices down -- but he also explains that his favorites have more going for them than just a big discount.

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. 

John Cole Scott, President of CEF Advisors, talks about how current conditions have made for nervous times in the business-development company space, and he looks at history to determine whether the risks are systemic rather than situational. The conversation looks at how the BDC space has gotten extensive scrutiny recently from the Financial Times and on sites like Seeking Alpha, with some observers forecasting trouble ahead; Scott, who is also the chairman of the Active Investment Company Alliance, acknowledges the potential for trouble but also highlights the differences between the top tier companies and the weaker players to conclude that there is less danger than the coverage suggests.

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.