Closed End Funds – Investing Around Retirement

Closed End Funds ? Investing Around Retirement

Dan Fox - BBA Strategies

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Closed End Fund Primer

? Mutual funds that trade throughout the day ? Can trade at discount or premium to NAV

? Often trade at discounts

? Can employ leverage ? Often offer high yields ? Niche market ? No redemption/creation features

? Don't need to hold cash for potential redemptions

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Closed End Fund Primer

? Total Equity ? US Equity ? Non-US equity ? Hybrid ? Specialty

? Total Bond ? Taxable ? National Muni ? Single State

? Totals ? Closed End Fund Advisors

204 29 47 14

114 315 147

89 79

519

$110,478 20,642 12,793 5,770 71,274

129,139 64,664 46,442 18,033

$239,617

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Overview of Strategy

? Portfolio of CEFs can provide long term steady income ? High yields in a low yield environment ? CEF income streams can exhibit very low volatility ? Disciplined strategy provides method to defease

consumption needs ? Infrequent trading to implement strategy ? Investors become indifferent to underlying fund prices ? Initial yield environment determines long term results ? Create diversified portfolio of funds

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Strategy Results

Cumulative Monthly Returns

Cumulative Monthly Returns for Closed End Fund Portfolio and S&P 500

200

150

100

Monthly Dividends

Total Dividends

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S&P 500 Returns

0

-50 Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13 Jan-14 Date

Jan-15

Jan-16

Jan-17

Jan-18

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Why Focus on Retirees?

? Consumption needs are well known

? Probably less volatility in consumption patterns for retires than earlier in life

? There is enough time to accumulate assets

? CEF strategy requires a large enough asset base for dividend stream to meet consumption needs

? With sufficient dividends focus on principal maintenance is reduced

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Strategy/Analysis Rules

? All dividends received monthly

? Quarterly dividends spread over three months ? Double December dividends split ? No supplemental dividends

? Positions changed when dividends cut

? CEF market is somewhat inefficient

? Replacement fund ranking ? Maintain diversification

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