CEF Connect is the go-to place for investors looking to research closed-end funds. However, many find the site difficult to navigate. In this article, we share tips to help investors in this space.
Closed-end funds are a different investment security type than ETFs and mutual funds. They are traded much like individual stocks. However, they tend to be a much more aggressive style compared to a generic fixed income allocation. Offering a high yield when compared to regular fixed-income securities.
CEF Connect #1 Resource – Top Tips, Tricks & Hacks
CEF Connect Intro
CEF Connect was created by an investment company called Nuveen. Its main goal is to share information on closed-end funds that investors can use to make investment decisions.
Some of the main features that we’ll discuss below include a fund analysis page, fund screener, portfolio creation and an education center. However, the average investor may not be sure how to break down each of these sections.
So, the rest of this article will outline each part of CEF Connect that we find most useful.
Before we get into it, we’d like to share our most recent article that covers Series I Bonds, a strategy that investors use to fight inflation, much like closed-end funds.
Fund Analysis Page
We’ll start off with what we view as the most important page on CEF Connect. The fund analysis page is going to be where you land after using the search bar at the top right. (You can type in the name of an investment company or the fund ticker.)
The overview tab on CEF Connect is the default tab that will come up after searching for and selecting a fund. At the top left, you will see a chart showing the fund’s share price, net asset value, and if the fund is trading at a premium or discount.
Let’s break that down just a bit. The share price is the price that one share of a closed-end fund is trading at on the market. The NAV is the market price of the underlying holdings in the fund. Since the fund’s market price can fluctuate above or below the NAV, an investor can buy in at a premium or discount.
The line graph on the right of the screen shows how the market price differs from the NAV over time. Since closed-end funds experience high levels of volatility, you can expect these charts to be somewhat difficult to use as a prediction tool. However, it is useful to see how the fund’s price has performed versus the NAV.
The Fund Basics tab is just to the right of the Overview tab. This page offers broad info on the main characteristics of the CEFs on CEF Connect.
At the top left, you will find the investment objective of the fund. This will outline how the fund is set up and what investment strategies it utilizes to provide investment returns.
Just below that will show the Capital Structure. Which shows up-to-date data on the total investment exposure, total common assets, and common shares outstanding. If you notice that the investment exposure is different from the total common assets, then it is likely that the fund is being leveraged.
Below the Capital Structure field is the Leverage data. This shows the total debt, leverage, and effective leverage percentage of the fund. The effective leverage percentage is found by dividing the effective leverage by the total investment exposure. A higher leverage percentage, coupled with volatile investment holdings, would likely lead to high levels of price volatility. Something you should be prepared for if you plan to invest in a closed-end fund.
On the top right of the Fund Basics page, you will find information on the fund manager and the portfolio managers. You can also find info on the average trading volume and inception info. As you know, low trading volume can also lead to high levels of price volatility for the fund.
This page will also show the fund’s overall expense ratios and management fees. Lastly, you can find links to SEC Filings, Intraday Pricing, and the Fund Sponsor’s Website as well.
The next tab to the right is the Distributions page. The top chart will show how/if the fund is making consistent levels of distributions. If you see one bar that is much higher than the rest, it is likely that the fund made a special distribution at the end of the year.
The chart below and to the left will break down the dates of the distributions and what type of distribution was made. This can include income, long-term gains, short-term gains, and return on capital (ROC).
The most important part of this page is at the bottom right. This chart shows the annualized distribution rate based on the previous day’s NAV, the total return on NAV, and the average coupon in the portfolio. Ideally, investors are usually looking for funds with high distribution rates and a steady, positive total return.
The pricing information tab is relatively self-explanatory. The main graph on the page will show how the fund has traded over the selected time period. Since these funds are publicly-traded, they have the potential to trade at a premium or discount. Unlike a mutual-fund, closed-end fund shares are not redeemed at NAV. Instead, they are bought and sold on a brokerage exchange at the market price.
The other tables on the page can be useful to see how the shares have trended over different time periods at a premium or discount.
The performance tab is pretty basic as well.
The first graph will show the YTD performance of the fund compared to its labeled “category”. The category can be found on the Fund Basics tab as designated by Morningstar. This can be useful to see how the CEF NAV has performed against its peers in the market. As many closed-end funds are led with active management, something can be determined by its portfolio managers’ success for the year.
The next graph below the first breaks down performance by different time periods but still follows the same concept as the first.
The Portfolio Characteristics page is where we can really get into the nuts and bolts of the fund.
At the top left, it will show the average coupon of the invested bonds in the portfolio, the number of holdings, and the average bond price. This info can help you understand how aggressive the fund managers are investing and how diversified the portfolio is. For reference, if the average price of the bonds is far less than $100, then it’s likely the fund is invested in below-investment-grade bonds.
Below that is the asset allocation bar graph. This will show what investment vehicles the fund is invested in. Some of the common assets included in closed-end funds are stocks, bonds, convertible bonds, preferred shares, and cash. Notice that the cash may be negative. This likely represents that the fund is using leverage and thus is borrowing cash.
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The next section on the left covers the top sectors and state allocations. This will help break down how the fund has diversified its bond allocations between different sectors of the credit market.
Back up to the top right, the top holdings chart will break down the ten top holdings in the portfolio. These are likely the top convictions of the portfolio managers within the fund since they make up the largest proportion of the fund.
Below that section, you can find the credit quality of the bonds in the fund. This will again represent the aggressiveness of the fund where anything below a BBB rating is considered “junk bonds” that have a higher risk of default. However, the investment management company has done its due diligence to find high-yield bonds that they believe are worth the risk to invest in.
The next chart on the right will show the maturity breakdown of the bonds in the portfolio. This will represent how sensitive the NAV of the fund is to changes in interest rates. Bonds holding a lengthy maturity carry more interest rate sensitivity than shorter-duration bonds.
The bottom right table shows what countries the fund is allocated to. You may see a mix of developed and developing countries on this list. You’ll notice the total of these percentages may exceed 100%. This is due to the leverage being utilized in the portfolio.
The Fund Screener section is useful for investors looking to filter down the funds that meet their objectives or interests. However, we will warn you that we find it a bit unintuitive. Luckily, CEF Connect does offer a tour at the top right of the page, and we highly recommend you give it a look.
The main Dashboard will lay out all of the preset screens available and any past searches you may have run. Assuming this is your first time running your own screen, let’s move to the Strategies tab.
After selecting the strategies tab, you can choose which type of investment strategy you’re interested in. The options will include Fixed Income – Municipal (for tax-aware investors investing in a non-retirement account), Fixed Income – Taxable (mainly used by aggressive investors in their retirement accounts), Equity, and Hybrid. Each of these options has dropdowns that allow you to break them down even further.
The next section is Criteria. With more than 30 options to choose from, we’re going to ask you to do your homework here. However, CEF Connect does offer a “Most Common Data Points” button that will auto-populate the most commonly used filter criteria. These include leverage, market cap, distribution rate/amount, discount/premium, and NAV.
It’s worth noting that you can select multiple options below each of these categories. For instance, for the distribution rate, you can select 7-9% and over 9%. These basic options can allow you to filter toward funds that might meet your investment objective.
The next tab allows you to choose which sponsors you’d like to look through. The first dropdown shows the “Top 10 Sponsors” which is based on which investment companies offer the most CEFs.
The second dropdown shows all sponsors available and ranks them by most funds available to the least. The last dropdown shows all available sponsors by name, listed in alphabetical order.
We will pass over the presets tab since we’re building our own screener.
Once you’ve selected all of your filters, at the bottom right, you’ll see a blue ‘View Funds’ button which will take you to a page that showcases the funds that meet your screened criteria.
Portfolios & Alerts
The Portfolios and Alerts tabs are a great option for people looking to create price alerts on funds they are interested in. You can also create your own custom watchlists and portfolios to see how these funds perform.
For those looking to go the extra mile and learn even more about investing in CEFs, the Education Center on CEF Connect has a wide range of resources.
Some of these topics include understanding leverage, fund structures, return of capital and how distributions are managed.
Retirement Planning in Today’s Market can be very challenging. It’s our goal to help you all prepare to succeed in this difficult environment. We answer questions like, “How Do I Invest In Times of Uncertainty?“
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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