CEFS: Remains An Attractive Closed-End Fund Focused ETF

seekingalpha06-08

Richard Drury Written by Nick Ackerman, co-produced by Stanford Chemist. In our last update for Cohen & Steers Closed-end Opportunity Fund (FOF), we also took a look at Saba Closed-End Funds ETF (BATS...

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In our last update for Cohen & Steers Closed-end Opportunity Fund (FOF), we also took a look at Saba Closed-End Funds ETF (BATS...</p>\n\n<a href=\"https://seekingalpha.com/article/4698063-cefs-remains-an-attractive-closed-end-fund-focused-etf\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>CEFS: Remains An Attractive Closed-End Fund Focused ETF</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCEFS: Remains An Attractive Closed-End Fund Focused ETF\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-08 00:21 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4698063-cefs-remains-an-attractive-closed-end-fund-focused-etf><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Richard Drury Written by Nick Ackerman, co-produced by Stanford Chemist. In our last update for Cohen & Steers Closed-end Opportunity Fund (FOF), we also took a look at Saba Closed-End Funds ETF (BATS...</p>\n\n<a href=\"https://seekingalpha.com/article/4698063-cefs-remains-an-attractive-closed-end-fund-focused-etf\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1599440770.SGD","symbol_name":"FIDELITY GLOBAL DIVIDEND \"A\" (SGDHDG) INC","start_time":0,"source_url":"https://seekingalpha.com/article/4698063-cefs-remains-an-attractive-closed-end-fund-focused-etf","article_id":"2441964340","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1824323171/image_1824323171.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2441964340","pubTimestamp":1717777280,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Richard Drury Written by Nick Ackerman, co-produced by Stanford Chemist. 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In our last update for Cohen & Steers Closed-end Opportunity Fund (FOF), we also took a look at Saba Closed-End Funds ETF (BATS:CEFS). I believed it was a superior choice over FOF at the time, given FOF's historically elevated premium. It turned out that choosing CEFS ended up being the far superior choice. Today, FOF is still trading a bit richly, even as the premium has come down. I still would view CEFS as the top choice currently between the two, and waiting for FOF to move to a meaningful discount. CEFS Basics  Dividend Frequency: Monthly Distribution Yield: 8.55% Expense Ratio: 1.10% Leverage: 12% Managed Assets: $197.3 million Structure: Active ETF.  CEFS' investment objective and investment strategy are to \"generate high income by investing in closed-end funds trading discounted to net asset value, and heading the portfolio's exposure to rising interest rates.\" CEFS is a leveraged fund itself, which is worth noting because it invests in other underlying closed-end funds, which have their own leverage. For the most part, CEFS leverage utilization is fairly modest, as of their last annual report, they had ended the fiscal year with $22.4 million in borrowings but reached up to $47.1 million. Several of the fund's largest holdings currently are not employing leverage either, which helps to balance out the underlying portfolio in terms of how much leverage one is exposed to. So, I don't see this as a big negative currently, but any leverage is going to increase volatility and risks. Leverage also increases the fund's expense ratio; taking the 1.10% management fee and including the leverage expenses, we see an expense ratio of 2.49%. They are charged rates based on OBFR plus 1.25%. Further, the underlying funds have their own expenses as well. When including the acquired fund fees and expenses, the total expense ratio for CEFS comes to 5.81%. That's certainly fairly high, but performance has still been respectable. Additionally, a lot of that is the leverage expenses, and in theory, leverage should be 'paying for itself' if the fund is operating successfully. This is a bit easier to measure with fixed-income-focused funds, which represent a meaningful portion of this fund's portfolio. If a fund is paying 5-6% on their leverage but investing in yields of 8-10%—that's how leverage can pay for itself, and it is easily measurable. Still Choosing CEFS, Solid Track Record Our last article hit the public side of Seeking Alpha on November 30, 2023. That also happened to coincide with a strong overall move in the equity market.   Ycharts The SPDR® S&P 500 ETF Trust (SPY) isn't a good benchmark for either of these funds, as they are diversified across asset classes. That said, it can give a good perspective and provide some context of what was happening in the broader U.S. equity market. It is also worth noting that during this time, despite only about 50% equity investments, CEFS had outperformed SPY during this relatively short period. FOF put up a respectable return as well on a total NAV return basis. However, thanks to the premium that was pushing near the fund's high watermark of ~7% and now falling back from that level, that resulted in the fund's total share price return underperformance. When investing in a closed-end fund that invests in other CEFs (i.e., fund-of-funds approach), one of the main benefits is getting a discount on discount. At least, that is my opinion. So, when there is an alternative to get similar exposure without paying more than the underlying portfolio, that's what I will take. The discount on discount can help mitigate the major downside of fees on fees that also come with the approach. Therefore, I believe any premium for FOF is too rich, but we also see that the fund is trading above its historical level as well.   Ycharts The trend has been a narrower discount over the years, but when something like CEFS is available at no premium due to the ETF structure, I will continue to lean toward that as the more attractive alternative. In general, CEFS has been a relatively successful ETF investing in CEFs. At least the long-term track record suggests they know what they are doing. CEFS has provided the strongest returns compared to several of its peers over the long term by a wide margin. At one point, the performance was a bit closer between this basket, but in 2022, the fund really started to pull away.   Ycharts CEFS Distribution Thanks to receiving high distributions from the underlying portfolio names, CEFS can also pass on a high distribution yield to its own investors. They've paid $0.14 per month since the inception, with a few specials paid out along the way as well. CEFS Distribution History (Seeking Alpha) This currently works out to an attractive 8.55% distribution rate. Thanks to the fund's strong track record, the fund has been earning that distribution. We can track that simply by watching the NAV and, being that it is an ETF, the share price, too. The NAV has fallen on several occasions, which is going to naturally happen when investing. Investing in underlying CEFs also means the fund is experiencing the discount/premium fluctuations of its underlying holdings. That is what made it an especially sharp drop during COVID. That said, after the latest dip that was brought on by the 2022 bear market, the fund has been bouncing back toward and once again overtaking the inception price.   Ycharts CEFS Portfolio As of the end of Q1 2024, the fund was most heavily invested in equity, but that only comprised around 47% of the fund. The second-largest sleeve was fixed-income at 27%, followed by alternatives at 16% and \"mixed allocation\" at 10% to top it off.   CEFS Asset Class Exposure (Saba Capital) The fund listed 108 holdings, with the underlying portfolio having an average weighted discount to NAV of -12.6%.   CEFS Portfolio Info (Saba Capital) The fund's latest largest holding is one of Saba's largest targets right now in the CEF space in terms of activist pressure. CEFS Top Ten Holdings (Saba Capital) Saba controls around 28% of BlackRock ESG Capital Allocation Term Trust (ECAT) and is looking to take the fund over. With 18.22% of CEFS in ECAT, that is a significant position for the fund overall. Though, since ECAT itself is a highly diversified fund, it wouldn't necessarily mean a lot of individual company risk that one would normally get with such a high concentration. Saba ECAT Ownership (Secform4) In fact, most of the largest holdings here are funds that Saba is actively pressuring currently. BlackRock Innovation & Growth Term Trust (BIGZ), BlackRock Capital Allocation Term Trust (BCAT) and BlackRock California Municipal Income Trust (BFZ) are other targets where they've been more aggressive. Adams Diversified Equity Fund (ADX) is another interesting one to note, with recent news coming out about a tender offer and an increased distribution. Saba held a position in this one for a while now, but in 2024, they upped their position further. So seeing the changes announced from ADX is likely a result of the push from Saba. Saba Ownership of ADX (Secform4) ADX is one of the oldest CEFs on the market today, with an inception going back to 1929. Their history goes even beyond that, but that's when the company emerged as a closed-end investment company. It is, admittedly, one of the more boring funds. They paid a level quarterly distribution that is small and then have a year-end top-off distribution to hit their annual 6% minimum managed policy. The fund also isn't leveraged, and being such a 'boring' fund is probably why it's been able to survive so long in the first place. However, this has led to the fund trading at rather sizeable discounts for most of its measurable life. With the fund now shifting to an 8% minimum managed distribution policy, paid 2% each quarter based on the average NAV, that will see higher distributions throughout the year. Conclusion  The fund-of-funds approach means higher expenses for Saba Closed-End Funds ETF. However, with a strong track record, it at least suggests historically that hasn't prevented respectable returns. Currently, the largest position is fairly concentrated in ECAT, but it is a highly diversified fund itself. CEFS also offers investors an attractive monthly distribution that can be attractive for income-focused investors.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2441964340"}