Financial Professionals


‘Tis the Season: Shopping for YE Opportunities in Closed-End Funds


When it comes to investing in closed-end funds, a comprehensive understanding of the inefficiencies of the market may lead to profitable results. Yet spotting attractive trading opportunities involves more than just looking for the widest discount to net asset value (NAV); understanding why a fund sports a particular premium/discount valuation is much more telling than the raw data itself.

At Thomas J. Herzfeld Advisors, Inc., one of our best-known proprietary trading strategies centers on year-end trading activity. Pressures on share prices in the fourth calendar quarter have historically tended to provide favorable investment opportunities, while the lifting of those pressures at the beginning of the calendar year may present profitable exit points.

Fourth quarter volatility has to do with tax planning. Investors typically look at their net realized gains coming into year-end, and may seek to reduce potential tax consequences by realizing offsetting losses.

Funds targeted for disposal tend to be the poor performers, and recent sector downturns mean that selling pressure is expected to be concentrated in a few hard-hit areas.

We expect these three themes present opportunities for closed-end funds at year-end:

  1. Energy Independence, with a Payout – MLP Funds
  2. Look at the Losers – Senior Loan Funds
  3. Municipal Fund Year-End Trends – Tax-Exempt Muni Bond Funds

To read more about these timely themes and related action items, click here to download the special commentary, “Herzfeld’s Outlook: Seasonal Factors Provide Opportunities in Closed-End Funds,” which features a handy guide to understanding closed-end fund discounts.

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.