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In this weekends Barron’s Andrew Bay makes the case for closed-end funds. Closed-end funds (CEFs) are a collective investment scheme with a fixed number of shares, unlike closed end funds new shares/units in a closed-end fund are not created by managers to meet demand from investors. Instead, CEF shares can only be bought and sold in the market.
Bay writes that many CEF’s are trading at a discount to their net asset values (NAV). The $231 billion closed-end market recently hit its most inexpensive level relative to NAVs since the end of 2008 according to data from Morningstar.
The current bargains are attracting the attention of a number of bond heavyweights, including PIMCO’s Bill Gross and Doug Kass of Seabreeze Partners.
Closed-end funds are available in a wide range of assets, including mortgage securities, corporate bonds, Treasuries, preferred stock, junk bonds, and emerging-market debt, but its the municipal market where the biggest bargains can be found.
Bay writes. “Much of the recent focus has been on depressed closed-end muni funds, which have experienced tax-related selling after price declines of as much as 20% this year caused by rising yields, leverage, and widening discounts.”
All this makes closed-end bond funds particularly attractive in the current environment, considering that short rates could remain near zero for another year or two.
Todays Other Top Stories
ETF Daily News: – The case for municipal bond ETFs in 2014. – The municipal bond market has been hard hit this year as investors pulled their capital out of these bonds for most of the year. The Fed’s taper threat and the resultant increase in interest rates since late May largely prompted investors to avoid these plays.
Bloomberg: – California thrives as inland cities struggle. – California’s highest credit ratings since 2009 and projections of billions of dollars in surpluses mask the struggle of inland communities such as Fresno, whose bonds this month were cut to junk.
Bernardi Securities: – Will Detroit turn the muni bond market upside down? – Will the Detroit Chapter 9 bankruptcy turn the municipal bond world upside down? A random vacation photo captured this concern fairly well. With such a big question looming over the market, let’s review the ways in which the largest municipal bankruptcy in our nation’s history may set precedents for municipalities across the country.
Business Recorder: – Treasuries outlook: yields at high end of range draw buyers. – Longer-dated Treasury debt prices rose on Friday as yields near the upper end of their recent range drew buyers and the market adjusted to the idea that the Federal Reserve would begin to trim its bond purchases at the start of the new year. In late trade, the 30-year bond rose 1-11/32 in price to yield 3.82 percent, while the US benchmark 10-year Treasury note was up 11/32 for a yield of 2.89 percent.
Reuters: – Fed’s taper portends year of the bond picker. – It’s been years since fixed income offered investors the “safe and stable” side of a portfolio, but Canadian asset managers believe the waves created by the Federal Reserve’s tapering may make investing in bonds an especially bumpy ride in 2014.
CNBC: – Prices slip in light trading, Fed to buy bonds. – U.S. Treasurys prices slipped on Monday in light trading and five-year notes yields rose to more than two-month highs as investors unwound trades made before last week’s Federal Reserve meeting.
FT: – U.S. corporate bonds rally on Fed taper. – High quality U.S. corporate bonds have rallied to their best levels versus Treasury yields in two years in the wake of the decision by the Federal Reserve to taper its quantitative easing policy.
LearnBonds: – Wells Fargo’s New high-yielding fixed-to-floating preferred is worth considering. – Fixed-to-floating-rate preferreds give investors the opportunity to lock in a fixed interest rate for a defined period of time, followed by a floating interest rate thereafter. Typically, the preferred stock will switch from a fixed to a floating rate on its first stated call date. Financial Lexicon takes a closer look at Wells Fargo new fixed-to-floating-rate preferred stock.
Yahoo Finance: – Massive upside trade in junk bonds. – One big investor is looking for junk bonds to stay strong next year even with interest rates pushing higher.
Forbes: – 2013 High yield bond issuance hits $324B, short of record $345B in 2012. – U.S. junk bond issuance in 2013 totaled $324 billion, the second-largest yearly figure ever, behind the unprecedented $344 billion logged in 2012, according to S&P Capital IQ/LCD. The high yield market ended 2013 on a relatively active note, with roughly $22 billion in volume during December.
Pension and Investments: – Low emerging markets returns have investors wary. – Just when pension funds across the globe were getting comfortable with the idea of investing in emerging markets, their faith is being tested by disappointing performance.
Artemis: – Tradewynd catastrophe bond benefitted from modelling disclosure. – RMS, one of the world’s leading catastrophe modellers, states that it has pioneered a new approach to modeling indemnity catastrophe bonds, through its work with AIG and Swiss Re on the recently completed Tradewynd Re Ltd. (Series 2013-2)deal.
4Traders: – Record high for outstanding CAT bonds; Demand to continue. – As investor demand has continued to grow for catastrophe bonds (CAT), sponsors have been able to offer deals at considerably lower coupon rates and with increasingly favorable structures that suit individual company needs, according to Fitch Ratings. As deals have leaned further in favor of sponsors, continued strong demand for a diversifying set of risks remains the key driver of the thriving CAT bond market.
Morningstar: – You wanted Bill Gross? You got him. – On Dec. 5, 2013, PIMCO announced that skipper Chris Dialynas will begin a sabbatical in March 2014 (likely for a year) but that he would immediately depart this fund. His replacement is Bill Gross.
Money Marketing: – Bond fund outflows at six-month high on tapering shock. – Investors across the globe withdrew money from bond funds at their fastest pace in six months ahead of the news that the US Federal Reserve will scale back quantitative easing.
IndexUniverse: – 3 Best-performing fixed-income ETFs of 2013. – This year has been a very challenging one for bond investors, with compressed rates pressuring income potential, and monetary policy casting a shadow on long-dated debt.
WSJ: – How crisis strengthens Europe’s bonds. – Markets are in a constant state of flux. But they are also driven by long-term structural forces that end up producing lasting change. In Europe, the corporate bond market has been undergoing a quiet revolution ever since the global financial crisis hit.
Roman Chuyan: – Bonds: Low return, high risk asset for 2014 and beyond. – It’s the time of year when investors and investment managers alike plan on how to position their portfolios for success in 2014. Part of the value that wealth managers deliver to clients is advising them on proper asset allocation. In fact, it’s a very important part – research has shown that about 90% of return and risk for a balanced stock-and-bond portfolio comes from asset allocation.
Barron’s: – Surviving the end of the bull run. – Thank God that’s over. Part of the point of investing in bonds is that they’re supposed to be predictable, but 2013 was about as wild a ride as you’re ever going to get, or want, from bonds.
Financial Times: – Fed ‘taper’ set to cause further damage in bond markets. – Bond investors with a broad exposure to different types of US securities are facing their first negative year of performance since 1999 and only their third annual loss since 1976.
Morningstar: – 6 New bond and currency ETFs from WisdomTree. – WisdomTree has rolled out six exchange-traded funds devoted to a variety of corners of the bond and currency markets. The bond funds focus on a theme of rising interest rates.
Trustnet: – The M&G bond team: What we learned from 2013. – Nicolo Carpaneda, who works on the highly rated M&G fixed income team, highlights some of the major themes that have driven global bond markets in 2013.
MoneyBeat: – Investment banking’s fixed income engine spluttered in 2013. – While 2013 was the year that equities finally made a comeback, for investment banks these gains did little more than soften the blow of continued contraction in fixed-income revenues.
RT @WGlasgall: Philadelphia GOs get 2-step upgrade from S&P, now at A+ with stable outlk. "Strong budget performance" cited.
— Brian Chappatta (@BChappatta) December 23, 2013