QUARTERLY CLOSED END FUND REVIEW OUTLOOK · 1st Quarter 2013 Outlook Intermediate/Advanced CEF...

QUARTERLY CLOSED‐ENDFUND REVIEW & OUTLOOK

John Cole Scott, CFSPortfolio Manager, Executive Vice President

Closed‐End Fund Advisors, Inc.

4th Quarter 2012 Review & 1st Quarter 2013 Outlook

Intermediate/Advanced CEF Skill Level

January 8, 2013

DisclaimerImportant: The information in this presentation is not for general circulation and should not be considered an offer, or solicitation, to deal in any of the mentioned funds. The information is provided on a general basis for information purposes only, and is not to be relied on as advice, as it does not take into account the investment objectives, financial situation or particular needs of any specific investor.

Any research or analysis used to derive, or in relation to, the information herein has been procured by Closed‐End Fund Advisors (“CEFA”) for its own use, and may have been acted on for its own purpose. The information herein, including any opinions or forecasts have been obtained from or is based on sources believed by CEFA to be reliable, but CEFA does not warrant the accuracy, adequacy or completeness of the same, and expressly disclaims liability for any errors or omissions. As such, any person acting upon or in reliance of these materials does so entirely at his or her own risk. Any projections or other forward‐looking statements regarding future events or performance of countries, markets or companies are not necessarily indicative of, and may differ from, actual events or results. No warranty whatsoever is given and no liability whatsoever is accepted by CEFA or its affiliates, for any loss, arising directly or indirectly, as a result of any action or omission made in reliance of any information, opinion or projection made in this presentation.

The information herein shall not be disclosed, used or disseminated, in whole or part, and shall not be reproduced, copied or made available to others without CEFA expressed written permission. CEFA reserves the right to make changes and corrections to the information, including any opinions or forecasts expressed herein at any time, without notice.

2www.CEFadvisors.com

Current Closed‐End FundOptions & Assets


• 43 (‐1) US Equity Funds• 113 (+2) Specialty Equity Funds• 63 Non US Equity Funds

219 Total Equity Funds

• 157 (‐1) Taxable Bond Funds• 103 (‐7) National Municipal Bond • 117 (‐3) State Specific Municipal

Bond 377 Total Bond Funds Source: ICI

4Q 2012 Ended with 596* US listed Closed‐End Funds

Source: CEFA’s CEF Universe Report 12/28/12 (cefuniverse.com)

Closed‐End Current Discounts


Source: CEFA’s Closed‐End Fund Universe (www.cefuniverse.com)

US Equity ‐10.8%

Non US Equity ‐8.84%

Specialty Equity ‐4.95%

Taxable Bond Funds ‐1.47%National Muni Bond ‐0.53%

State Specific Muni Bond Funds ‐0.25%

‐14.00%

‐12.00%

‐10.00%

‐8.00%

‐6.00%

‐4.00%

‐2.00%

0.00%

2.00%

Average CE

F Discou

nt

All Funds - Current Average CEF DiscountDecember 28, 2012

Closed‐End Discount Trends

5www.CEFadvisors.comSource: CEFA’s Closed‐End Fund Universe (www.cefuniverse.com)

4Q 2012 Ended with an average CEF Discount of ‐3.18%

‐30.00%

‐25.00%

‐20.00%

‐15.00%

‐10.00%

‐5.00%

0.00%

5.00%

All CEFs - Average CEF DiscountApril 7, 2008 - December 28, 2012

All CEFs

Closed‐End Discount Trends

6www.CEFadvisors.comSource: CEFA’s Closed‐End Fund Universe (www.cefuniverse.com)

‐15.00%

‐10.00%

‐5.00%

0.00%

5.00%

30/Dec/11 30/Mar/12 30/Jun/12 30/Sep/12 31/Dec/1

Peer Group - Average CEF DiscountDecember 30, 2011 - December 28, 2012

US Equity Non US Equity Special Equity Taxable Bond Nat Muni Bond All CEFs

Relative UNII for CEF Bond Funds



‐60

‐40

‐20

0

20

40

60

80

100

Main Peer Groups - Relative UNIIApril 11, 2008 - December 28, 2012

Taxable Bond Nat Muni Bond

Return of Capital (90 Day) For CEFs



0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Historical Return of CapitalApril 16, 2010 - December 28, 2012

US Equity Non US Equity Special Equity Taxable Bond Nat Muni Bond State Muni Bond

Return of Capital (90 Day) For CEF Sub Sectors



0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%


Historical Return of CapitalDecember 30, 2011 - December 28, 2012

Equity Tax Advantage General Equity Funds US Growth & Income

Global Growth & Income Asian Equity ‐ Single Country Covered Call Funds

Energy Natural Resources MLP Funds Preferead Equity Leveraged

US Real Estate Funds Utilities Funds

Earnings Coverage RatioFor Closed‐End Funds



0

20

40

60

80

100

120

1‐Jun‐12 1‐Jul‐12 1‐Aug‐12 1‐Sep‐12 1‐Oct‐12 1‐Nov‐12 1‐Dec‐12 1‐Jan‐13

Main Peer Groups - Earnings Coverage Ratio %June 1, 2012 - December 28, 2012

All CEFs All Equity All Bond US Equity

Non US Equity Specialty Equity Taxable Bond Nat Muni Bond

Income Only YieldFor Closed‐End Funds



0

1

2

3

4

5

6

7

8

9

10


Main Peer Groups - Historical Dividend - Yield Income December 30, 2011 - December 28, 2012

US Equity Non US Equity Special Equity Taxable Bond Nat Muni Bond

4Q 2012 Closed‐End FundDividend Increases vs. Decreases


Source: Fund Press Releases

Dividend Announcement

Number of Announcements

Average Percentage Change

Dividend Maintains 887 (84%) N/A

Dividend Increases 55 (5%) +13.41%

Dividend Decreases 111 (11%) ‐6.99%

Under 5% Increase 35 (63.5%) +2.14%

Over 5% Increase 20 (36.5%) +33.13%

Under 5% Decrease 57 (51.5%) ‐3.21%

Over 5% Decrease 54 (48.5%) ‐10.98%

Recent Closed‐End FundDividend Increases vs. Decreases



CEF Press Release Summary(1347 CEF PRs in 4Q)



Announcement Type 4Q 2012 2012

Investment Policy Change 12 84

Leverage Amount Change 0 46

Name Change 14 42

Rights Issue 3 18

Tender Offer 19 107

Director Change 0 19

Fund Manager Change 15 56

Secondary Offering 2 67

Distribution Policy Change 0 5

Leverage Type Change 0 17

4Q & 2012 Closed‐End FundNAV / Market Price Performance


Source: CEFA’s Closed‐End Fund Universe Report

Fund Grouping 4Q NAV

4QMkt Pr

2012 NAV

2012 Mkt Pr

US Equity Funds ‐0.8% ‐4.8% 12.1% 11.8%

Non‐US Equity Funds 2.0% 7.5% 18.2% 20.4%

Specialty Equity Funds ‐1.8% ‐5.5% 11.2% 12.4%

Ave Equity CEF 0.4% ‐3.1% 13.5% 14.7%

Taxable Bond Funds 3.8% ‐3.0% 17.7% 15.7%

National Muni Bond Funds 1.9% ‐3.2% 15.2% 11.6%

State Muni Bond Funds 1.2% ‐1.9% 12.5% 11.1%

Ave Bond CEF 2.4% ‐2.7% 15.3% 13.1%

Average CEF 1.3% ‐2.8% 14.7% 13.7%

Closed‐End Fund Activist Update


Source: AST Group Activist Report: – www.cefinsight.com

Month Filed

Filing Closed‐End Fund Investor Notes

Dec 13D/A Aberdeen Emerging Markets Telecommunications (ETF)

Lazard Dec (22.59%)

Dec Rights Cornerstone Total Return Fund (CRF)

Public 1 new share for every 3 rights held

Dec 13D/A Greater China Fund (GCH) Bulldog Inc (6.46%)

Nov 13D/A American Strategic Income Portfolio II (BSP)

SIT Investment Inc (16.30%)

Nov Rights Cornerstone Strategic Value Fund (CLM)

Public 1 new share for every 3 shares held

Oct 13D/A Diamond Hill Fincls Trnd (DHFT) Bulldog Vote: continuing or liquidation

Oct Tender Macquarie Global Infrastructure TR (MGU)

Western 20% Tender @ 95%

Oct Tender Morgan Stanley Asia‐Pacific Fund (APF)

Public 5% Tender @ 98%


Net Flows from Activist InvestorsCourtesy AST Fund Solutions / CEFInsight.com


Activist Investment Behavior: Ave CEF Discount vs. Ave Dist. Yield

Courtesy AST Fund Solutions / CEFInsight.com

Closed‐End Fund Deaths


Source: CEF Press Releases

Period Average Number of Funds

2012 6 funds

2011 5 funds

2008‐2011 8.5 per year

2004‐2007 11 per year

2000‐2003 12.5 per year

1995 – 1999 11.6 per year

1990 ‐ 1994 4.2 per year

1990 ‐ 2012 8.5 per year

Causes: Open‐ending, liquidation & conversionSource: Fund Press Releases

Closed‐End Fund Deaths


Source: Fund Press ReleasesCauses: Open‐ending, liquidation & conversionSource: Fund Press Releases

0

2

4

6

8

10

12

14

16

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of CEF Funds Open‐Ended, Liquidated or Converted to ETF

Converted to ETF

Liquidated

Open‐ended

Closed‐End Fund Mergers



Period Average Number of Funds

2012 57 funds

2012 4Q 12 funds

2011 5 funds

2008‐2011 7.3 per year

2004‐2007 8.5 per year

2000‐2003 11.3 per year

1995 – 1999 5.6 per year

1995‐2012 10.7 per year

Reasons to Merge: 1. Reduce expense ratio 2. Increase liquidity 3. Reduce bid/ask spread 4. Improve cost of future leverage

Closed‐End Fund Mergers


Source: Fund Press Releases, Herzfeld Research

0

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Num

ber o

f Closed ‐E

nd Fun

ds

Closed‐End Funds Merged into Other Closed‐End Funds (December 2012)

Closed‐End Fund Historical IPOs

23www.CEFadvisors.comSource: CEF Association

2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Number of IPOs 23 19 17 13 2 40 21 47 50 48 77

Average AssetsIn $ millions $523 $316 $451 $200 $131 $690 $506 $452 $462 $591 $209

Total New CEFIPO Assets in $

Billions$12.0 $6.0 $7.7 $2.6 $0.3 $27.6 $10.6 $21.2 $23.1 $28.4 $16.1

10 Year Average: 28 Funds per year, $432M Ave Fund, $14 Billion Per Year

2012 IPO 4Q Details


Babson Cap Global Short Duration High Yield Fund (BGH)IPOed on October 26, 2012

IPO Price: $25.00 IPO Assets: $462.5MYear‐end Price: $23.83 Year‐end Discount/Premium: ‐1.85%

Nuveen Long/Short Commodity Total Return Fund (CTF)IPOed on October 26, 2012

IPO Price $25.00 IPO Assets: $470MYear‐end Price: $21.44 Year‐end Discount/Premium: ‐5.92%

Stone Harbor Emerging Markets Total Income Fund (EDI)IPOed on October 26, 2012

IPO Price: $25.00 IPO Assets: $240MYear‐end Price: $24.84 Year‐end Discount/Premium: +0.08%

Nuveen Intermediate Duration Municipal Term (NID) IPOed on December 6, 2012

IPO Price $15.00 IPO Assets: $630MYear‐end Price: $14.95 Year‐end Discount/Premium: +6.18%

2012 IPO 4Q DetailsContinued


Prudential Global Short Duration High Yield Fund (GHY)IPOed on December 21, 2012


Ares Dynamic Credit Allocation Fund (ARDC)IPOed on November 28, 2012


First Trust MLP and Energy Income Fund (FEI)IPOed on November 28, 2012


2012 Closed‐End Fund IPOs


Source: CEFInsight

2012 IPOs after 90 days (premium to NAV)


• Tortoise Energy Independence (NDP) = +3.52%• BlackRock Muni Target Term Tr (BTT) = +2.17%• Doubleline Opportunistic Credit (DBL) = +7.91%• PIMCO Dynamic Income Fund (PDI) +0.68%• Cushing Royalty & Income Fund (SRF) = +3.36%• Clearbridge Energy MLP TR Fund (CTR) = +1.24%• Mainstay DefTerm Muni Opps (MMD) = +0.81%

Average Premium to NAV: 2.81%

Closed‐End Fund90 Day NAV – Market Price Correlation


Source: CEFA’s Closed‐End Fund Universe Report

Fund Grouping NAV/Mkt Cor

US Equity Funds 80.7%

Non‐US Equity Funds 83.2%

Specialty Equity Funds 66.5%

Ave Equity CEF 74.1%

Taxable Bond Funds 21.5%

National Muni Bond Funds 50.7%

State Muni Bond Funds 61.1%

Ave Bond CEF 41.7%

Average CEF 53.6%

90 Day NAV/Price CorrelationFor Closed‐End Funds


Source: CEFA’s Closed‐End Fund Universe (www.cefuniverse.com)0

10

20

30

40

50

60

70

80

90

100

22/Jun/12 22/Jul/12 22/Aug/12 22/Sep/12 22/Oct/12 22/Nov/12 22/Dec/12

Main Peer Groups - 90 Day NAV/Price Correlation %June 22, 2012 - December 28, 2012

All CEFs All Equity All Bond US Equity

Non US Equity Specialty Equity Taxable Bond Nat Muni Bond

New Data We Track / FollowDuring 4Q 2012


• Average Maturity• Average Duration• Credit Quality Rating• Unrated Bonds (%)• Fund Sponsor• Expected Dividend Declare Date• Net Deferred Tax Liabilities per Share" (DTL / Share)• DTL Adjusted Premium / Discount" (DTL Adj Disc)• Return of Capital (RoC) Trend• Shares Outstanding

*We are open to ideas on what to include

CEFA’s Outlook for 1Q 2013


• Bond Funds vs. Equity Funds – Dividend Cuts & Premiums• Still very cautious of muni bond CEFs downside risk…

• Relative Pricing, UNII and Earnings Trend• We like senior loan funds, emerging market debt, convertibles, US equity, international equity, REIT CEFs /MLP

• Leveraged Equity & Cov Call Funds• Swapping Funds Regularly ‐ As Needed• Watch UNII Trend, RoC % / Trend and Earnings Coverage• Sustainable Dividends, Leveraged Adjusted NAV Yield• NAV Performance vs. Peers• Relative Discount and Z‐Stat, Relative Discount Range

What You Asked Us to CoverIn Webinar Registration


• Difference between NAV and Mkt Price• Disc/Prem / Opportunistic Trades / Trends / Historical Trends vs. market conditions• Bond Funds / Munis & Recent Volatility (Dealing w/)• Real Estate Funds / MLP Funds• Buy/Write / Option Income Funds• Contrarian Plays / Undervalued for Income Investors• Unwarranted Selling by retail in down markets• Distributions / Net Investment Income / UNII / RoC• Distribution or Principal• Speaking with Clients About CEFs• Research Sources• Leverage / Fees / Expenses• Correlation of Commodity CEFs vs. Commodity• Outlook for Credit CEFs in 2013• CEF Market liquidity• Leverage Option / Cost of Leverage

33

For Your InformationFree CEF Resources

The Closed‐End Fund Association: www.Closed‐EndFunds.comCEF Connect (Nuveen Sponsored): www.CEFconnect.comMorningtar's CEF Site:http://www.morningstar.com/Cover/CEF‐Closed‐End‐Funds.aspxInvestment Company Institute: http://www.ici.org/research#fact_booksCEFNetwork (Pristine Advisers): www.CEFnetwork.comCEF Insight (Activist Info from AST Fund Solutions): www.cefinsight.comCapital Link's CEF Portal: http://cef.capitallink.com/Morningstar Discussion Board (60K+ posts since 1998):http://socialize.morningstar.com/NewSocialize/forums/100000006.aspxThe CEF Network on LinkedIN (915+ Members): www.CEF‐Network.comSeeking Alpha: http://seekingalpha.com/articles?filters=closed‐end‐fundsJeff Margolin at First Trust: http://www.ftportfolios.com/Retail/Commentary/CEFCommentaryMain.aspxCohen & Steers: http://www.cohenandsteers.com/ii_closed‐end‐funds‐investment.aspNuveen CEF Commentary (Investment Professionals Only): www.nuveen.com/CEF/Info/CommentaryResearch.aspx

More Useful Links at: www.cefadvisors.com/investRes.html

QUESTIONS?


Closed‐End Fund Advisors, Inc.7204 Glen Forest Drive, Suite #105Richmond, Virginia 23226 U.S.A.

Toll Free: (800) 356‐3508 – Local: (804) 288‐2482www.CEFAdvisors.com ‐ [email protected]

Sign up or view archive for The Scott Letter: Closed‐End Fund Report: www.ScottLetter.comCheck out our blog: www.CEF‐blog.comRegister for more webinars / view on demand archive: www.cefadvisors.com/webinars.htmlLearn more about our weekly CEF Data Service: www.CEFUniverse.com

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QUARTERLY CLOSED END FUND REVIEW OUTLOOK · 1st Quarter 2013 Outlook Intermediate/Advanced CEF...

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