TheNAVigator

John Cole Scott, President of Closed-End Fund Advisors — the Chairman of the Active Investment Company Alliance — answers listener questions about whether premiums and returns of capital are as bad for investors as they are often cracked up to be, on whether interval funds are worth the illiquidity risk and if the reasons why individuals buy closed-end funds means they are better used as short-term investment tools. Plus, our host asks a question that came up for him as he watched the AICA chairman on the stage at the group's recent Business Development Company Forum in New York.

Bob Marcotte, President at Gladstone Capital Corp., says that government policies which encourage business investment and capital expenditures are creating outstanding conditions for the private credit market. In an interview at the Active Investment Company Alliance BDC Forum in New York City, Marcotte said that Gladstone is "very bullish" on the likely capital-expenditure cycle being spurred by tariff and near-shoring policies, but the veteran money manager also noted that BDCs have never been more competitive with the public markets, thans to rapid expansion in recent years, moving the industry to a point where "there's so much money in the private market today that it's almost as liquid as it would be if it were in the broadly syndicated market."

Mitchel Penn, Managing Director at Oppenheimer & Co. — interviewed at the Active Investment Company Alliance BDC Forum in New York on Wednesday — says that credit losses for business development companies during the first quarter of 2025 were more than double the level they have been at for the last few years. Penn says some of that increase could be attributed to the market's reaction to government policies, but that it also could be that interest rates have stayed higher for so long now that they are starting to create credit-quality issues. He said BDCs can still deliver returns in the range of 9% moving forward, though he warned that an increasing number of business-development companies may struggle to earn their dividends, making it particularly important for investors to check under the hood to make sure the yield is real and not goosed by return of capital.

Tonnie Wybensinger, Head of Government Relations for the Small Business Investors Association — interviewed at the AICA BDC Forum in New York on June 11 — discusses the role that lobbyists play in the legislative process and how current efforts to improve the tax treatment of business-development companies, as well as to level the playing field with mutual funds when calculating expense ratios for fund-of-funds. Those efforts — which have been ongoing for years — could soon be coming to a head, with the BDC tax-parity legislation included in the "One Big Beautiful Bill" currently winding through Congress.

Michael Grant, Co-Chief Investment Officer at Calamos Investments — Co-Manager of the Calamos Long/Short Equity & Dynamic Income Trust — says that current market conditions have made it that bonds are no longer a natural working hedge for equities downturns, and the downside risk in terms of capital return can be greater in the bond market than in stocks. He notes that investors are over-exposed to Magnificent Seven and the biggest of the large-cap stocks — noting that the typical client has about 40 percent of their equity assets there — and they need to diversify away from those positions to be less market-sensitive. He worries that turning to bonds in an inflationary environment will create portfolio pain, so he's looking to non-correlated assets to ride out the rate cycle, tariff problems and more.

John Cole Scott, president of Closed-End Fund Advisors — the chairman of the Active Investment Company Alliance — discusses two mainstream media articles that purported to name "the best closed-end funds" and that were published right around the times when he appeared on The NAVigator and gave out his own investment suggestions; he digs into the data to compare how all of the suggestions turned out and see how one-size-fits-all advice actually suits individual investors. It's a lesson in evaluating funds, but also on sizing up the sources of investment recommendations.

Brian Griggs, head of portfolio strategy and solutions at Nuveen, says that investors have long had too much dependence on large-cap domestic stocks and an over-reliance on duration in fixed-income allocations, and he says that investors should address those pain points today to address macro-sensitivity caused by today's headlines. Using Nuveen's Nsights anaytical tool — a proprietary system that examines how portfolio changes impact future portfolio performance — Griggs says that investors want to address their portfolio problems now, including holding too much cash, to make portfolios better prepared to ride out the bumpy times ahead.

Mark Gatto, co-founder and co-chief executive officer at CION Investment Group, says that private investments have been weathering current storms better than public companies because illiquidity translates to stability in times when the market is volatile. Gatto says these markets have highlighted what private investments do well, which should boost their attractiveness moving forward, with heightened demand leading to better pricing as more investors see how well the private sector's valuations have held up while the stock market dropped into bear market territory and then rebounded. 

Andrew Kohl, a Portfolio Manager with Aberdeen Investments — part of the team running the firm's Total Dynamic Dividend and Global Dynamic Dividend funds — says dividend-paying stocks are not immune from tariff concerns, and while investors often pick them for the income and don't want to make too many changes, it's important to to watch how the underlying business will be impacted by current conditions. Kohl says his portfolios have tilted toward international investments  this year, noting that foreign markets have outperformed the U.S. since "Liberation Day." He also discusses two of his favorite dividend stocks, offers a guess as to why one of the funds has seen its discount narrow while the other has not, and more.

Danielle Poli, Portfolio Manager at Oaktree Capital Management, says the credit market is delivering returns that are close to the historic gains for equities, noting that the current set-up is reminiscent of times in the early 2000s when credit "smoked" equities. With high-yield bonds earning around 8 percent and private credit showing significant demand, Poli says that credit can be more than just "a great place to hide out," amid rocky conditions and uncertainty surrounding the stock and bond markets. In talking with corporate executives, Poli says she has come to expect a slower economic environment, with the potential for higher inflation from tariffs, creating the kind of environment where "you're going to want to be in credit over equities."

Bryce Doty, Senior Portfolio Manager at Sit Investment Associates, says that current market conditions have changed the opportunity set for investors, who now want to be trading up by unloading closed-end funds that have hardly moved in favor of issues that have swung more wildly, even if that means "holding your nose" on the quality of the funds you're buying. He says that he is playing NAV movement in muni funds but discount movement in categories like high yield. And for all of the turmoil, Doty says his prediction for fixed-income closed-end fund returns this year "is still double digits, it's just going to be different."

John Cole Scott, President of Closed-End Fund Advisors — The Chairman of the Active Investment Company Alliance — is back with funds that can fit the bill of giving investors confidence amid the current stock market chaos. After answering audience questions last week, he supplements those answers with three investment ideas, discussing the details of the "trifecta analysis" — covering data points on discounts, yields and net asset values — that he performs on all funds when he sizes them up.

John Cole Scott, President of Closed-End Fund Advisors — the Chairman of the Active Investment Company Alliance — checks in on how closed-end funds have performed since the government's tariff announcement, particularly in bond funds, where the outlook for yields has put fixed-income markets under pressure; he also discusses discount levels, strategies that closed-end fund investors might use now, and how the current situation compares in closed-end funds to the market decline around the Covid pandemic.

John Cole Scott, Chief Investment Officer at Closed-End Fund Advisors — Chairman of the Active Investment Company Alliance — continues The NAVigator's ongoing effort to answer audience questions, this week digging into nuts-and-bolts issues like how to find the best closed-end fund in any sector, how to judge if a fund might reduce its distribution or change its term date, and how to size up expense ratios and yields to make sure you are accurately judging costs and returns.

Eric Purington, Portfolio Manager for the aberdeen Global Income Infrastructure fund says that large-scale infrastructure investors have raised billions to pump into the big names in the sector, the smaller private-equity firms and the middle-market opportunities have struggled to bring in capital. That has created an opportunity that Purington has taken advantage of for the last few years and that he sees continuing, as the infrastructure space continues booming; middle-market opportunities grow and mature and really pay off when they become investment targets for those well-funded, big private-equity investors. Purington says this trend has persisted over the last few years, is not dependent on government issues or subject to as much political risk as other infrastructure ideas.

Tony Rodriguez, head of fixed income strategy at Nuveen, expects the Federal Reserve to make two interest-rate cuts this year — he calls them "recalibration cuts," made to stabilize the economy but not in response to a hard landing — which will boost floating-rate assets like leveraged loans, collateralized loan obligations and more. Speaking at FutureProof Citywide in Miami Beach, Rodriguez said the Treasury market is over-valued right now, but that the municipal bond market is the most attractive of long-duration assets, which are particularly good looking considering closed-end fud discounts in the muni space.

Roxanna Islam, Head of Sector and Industry Research at VettaFi, discusses PCEF — the Invesco Closed-End Fund Income Composite ETF — which she considers the bellwether measure of the closed-end fund industry, a parallel to the Standard & Poor's 500 but for a closed-end space that is rapidly changing. Islam talks about how the ETF — which recently celebrated its 15th anniversary and has $800 million in assets — has changed over the years, how its approach has changed and how it stacks up to newer players in the space and why ETFs are particularly good representing niche industries and investment areas.  

Kimberly Flynn, President of XA Investments — which runs the XAI Octagon Floating Rate & Alternative Income Trust — discusses the development, growth and heightened demand in  alternative investments, as well as how current market conditions around rates, tariffs and uncertainty are hitting the loan markets. She notes that the current picture for leveraged loans involves healthy borrowers and muted defaults, making for good fundamentals and a solid outlook. She notes that the uncertainty surrounding tariffs and Federal Reserve moves will lead to more volatility but also should create new opportunities for active managers.

John Cole Scott, Chief Investment Officer at Closed-End Fund Advisors — the Chairman of the Active Investment Company Alliance — returns to The NAVigator in an ongoing project to answer audience questions, this week diving into the world of business-development companies. He sorts out the differences between BDCs and closed-end funds, explaining why some investors — himself included — analyze BDCs like a closed-end fund rather than a stock, but then digs into his firm's data to show what to look for to find "safe" business-development companies, and how bad things could get if a BDC encounters trouble.

Richard Stone, Chief Executive Officer for The Association of Investment Companies — the British equivalent to the Active Investment Company Alliance — discusses the similarities and differences in the closed-end fund industry between the two countries, and how activist investors, most notably U.S. based closed-end powerhouse Saba Capital, have struggled to gain traction in boardroom battles. 

Jim Baker, Co-Head of Energy Infrastructure Strategies for Kayne Anderson Capital Advisors — President of the Kayne Anderson Energy Infrastructure Fund — discusses generating "excess free cash flow" that helped the midstream index generate gains of over 50 percent for fiscal 2024, an impressive gain that still actually lagged the total return of his fund. Moving forward — and despite a political climate that he says could be a double-edged sword in the infrastructure space — Baker sees gains continuing potential for the sector to earn gains in the "low to mid-teens" for the next three to five years, fueled by the power demands of artificial intelligence, data centers and other applications.

Christian Munafo, chief investment officer at Liberty Street Advisors — the manager of the Private Shares Fund — discusses how there are plenty of opportunities among late-stage venture companies working to make a splash in the artificial intelligence field, but how hard it is to find the transformational companies positioned to succeed. He discusses what he is looking for, and where he thinks the best prospects are, and also gives an update on initial-public offering and mergers-and-acquisition action, as well as how market conditions have stiffened for private companies looking to raise capital now.

John Cole Scott, chief investment officer at Closed-End Fund Advisors — the chairman of the Active Investment Company Alliance — brings his data and portfolio-management methods back to The NAVigator to answer questions from listeners, covering concerns for California municipal bond funds in the wake of recent wildfires, how a steepening yield curve will impact discount levels, why investors shouldn't worry if closed-end funds don't appear to be keeping up with the stock market, and how historical levels of returns for closed-end funds compare to traditional mutual funds and other alternatives.

Miguel Laranjeiro, investment director for municipal debt at Abrdn, says the appetite for muni-bond assets has been growing at a point when "tax-exempt yields look really attractive," with tax-equivalent yields running up to 6 percent for investment-grade bonds, an attractive option compared to corporate and other bond types. Laranjeiro notes that potential policy changes being discussed in Washington are likely to help muni-bond investors and issuers, and that the biggest concern — a repeal of the tax exemption for muni bonds — is unlikely, and would not impact current paper if enacted. Further, Laranjeiro discusses how the wildfires in California — and similar disaster scenarios — are having some unexpected impacts on the muni-bond market.

Larry Holzenthaler, Portfolio Manager for First Eagle Alternative Credit — part of the team running First Eagle Credit Opportunities fund — gives his outlook for credit markets in 2025, noting that after avoiding default troubles when rates were rising, it should be stronger now, with paper being particularly strong in private credit. Holzenthaler further explained why private credit benefits from the interval fund structure and discussed how liquidity and valuations are shaping up in private credit now.

Mark Gatto, Co-Founder and Co-Chief Executive Officer at CION Investment Group, says that the landscape for global infrastructure spending could be as high as $3 trillion annually worldwide, which is going to create an investment asset class that is consistent, that can overcome political challenges, and that has public and private investment opportunities with significant earning potential. CION recently announced that it was teaming with GCM Grosvenor on the new CION Grosvenor Infrastructure Fund, which is currently going through the launch process — which includes a seed portfolio with nearly $300 million in assets — that should be available to advisers and investors before March.

John Cole Scott — president of Closed-End Fund Advisors and the chairman of the Active Investment Company Alliance — revisits the forecasts he made for the closed-end fund business a year ago and to grade himself as a soothsayer. Having made his 2025 calls for closed-end funds a week ago, he puts some weight behind his prognostications by showing that, for the second year in a row, the data that's now in the books proved most of his predictions to be correct.

John Cole Scott, President of Closed-End Fund Advisors, doesn't have a crystal ball, but he does have a mountain of data, and he digs through it to look at the stories he anticipates to be central to the closed-end fund landscape in the new year. Beyond looking at the big stories, John identifies five investments poised for breakout performances in the next 12 months.

Ken Burdon, a partner in the registered funds practice at Simpson Thacher and Bartlett, discusses how the return of President Donald Trump might benefit closed-end funds. One key development he will be looking for is for the approval of new investment vehicles that give retail investors more access to private credit markets and other alternative assets that have been until now the domain of affluent investors and institutions. He notes that the first Trump Administration was generally in favor of making more investment opportunities available, and he thinks that will pick up in the new term, especially with the selection of Paul Atkins as a potential new SEC chairman. Burdon also talks about how activist investors might be impacted by the regime change.

Ravi Chintapalli, Client Portfolio Manager on the Global Fixed Income team at Nuveen, says that the bond market has seen a structural change in the market for below-investment grade or junk bonds. Chintapalli says investors think of junk bonds as it was in times like 2007, when nearly one-third of the paper was teetering on the edge of default; today, however, only 10 percent of the below-investment grade paper carries those same low ratings, and default risk is much lower than in the past.  As a result, investors can expect high-yield bonds to live up to their promise, with 7 percent income levels moving forward, and some extra risk cushion in the many cases where the bonds are selling below par.

Michael Lowenberg of White Mountain Capital — Portfolio Manager for the Modern Capital Tactical Income fund (ticker MCTOX) discusses the factors he considers when picking closed-end funds for the portfolio. Lowenberg — whose fund buys both stocks and closed-end funds — likes the funds for their downside protection, and explains that he values the assets for the portfolio more than he values any discount, noting that he will actually buy funds trading at a premium if conditions are right. He particularly likes high-yield funds right now, dislikes tech-heavy issues and is a bit heavy in cash with discounts having narrowed in recent months.  

Kevin Mahn, President and Chief Investment Officer at Hennion & Walsh Asset Management — which runs the Smart Trust Unit Investment Trusts — says that he expects the Federal Reserve to cut rates over the next two years, which will drive investors to turn for income alternatives "since they can't find the 5 percent in the short-term CDs any more." That will drive investors toward business development companies and leveraged municipal closed-end funds, the latter benefitting from a reduced cost of leverage in a declining rate environment, as rates drive down. Mahn talks about using unit investment trusts — and specifically covers his firms UITs that invest in BDCs and closed-end funds — in current conditions, and talks about how the UIT structure can be a benefit for investors now.

The day after Thanksgiving is all about shopping at the biggest possible discounts, and John Cole Scott of Closed-End Fund Advisors puts a closed-end fund spin on it for the third straight year, culling through funds the way bargain shoppers look for the best deals. Scott — Chairman of the Active Investment Company Alliance — identifies three different closed-end funds and one business development company that, based on his firm's data, are particularly good bargains entering the holiday and tax-loss selling seasons.

The NAVigator this week offers a taste of the action from the Active Investment Company Alliance's 2024 Fall Roundtable, which was held on November 13 in New York City. Individual investor Jim Cohen discusses how consumers in closed-end funds are caught between activist "whales" and fund sponsors, wanting to hold funds to account to narrow discounts and improve management, but sometimes coming away with lesser results. Axel Merk, President and Chief Investment Officer at Merk Investments — manager of ASA Gold and Precious Metals Limited — discusses why gold has worked better as a geopolitical hedge but has been less successful as an inflation hedge. He adds that precious metals perform better in higher-rate environments, and he doesn't think the current round of rate cuts will go so far as to pose a problem for gold in the medium term.

Josh Duitz, Portfolio Manager for the Aberdeen Global Infrastructure Fund, took a break from the program at the Active Investment Company's Fall Roundtable in New York this week to discuss the state of infrastructure investing now that the presidential election has been decided and the policies of the second Trump Administration are becoming more clear. Duitz says that deregulation and lower corporate taxes will help certain freight, for example, balancing out initial concerns about how tariffs might impact demand. He also notes digs into renewable energy — which critics have said they expect the Trump Administration to hurt — noting that he expects demand to keep it rolling, with some of that demand also coming from the nation's increasing reliance on artificial intelligence.

Jared Hagen, Vice President at XA Investments, discusses this year's unprecedented growth in interval and tender-offer funds and how the number of funds in registration guarantees the trend will continue through 2025. Hagen talks about why the investment community has taken a shine to interval funds and covers how the expansion into the space has included some unique partnerships, with firms like KKR and Capital Group pairing up to bring new products to market.

John Cole Scott, President of Closed-End Fund Advisors and Chairman of the Active Investment Company Alliance, digs into his firm's data to break down a great three-month stretch for closed-end funds and business development companies. He says it was a period in which discounts narrowed dramatically and changed the opportunity set without it becoming overvalued or unattractive. 

Jonathan Browne, Senior Investment Analyst at RiverNorth Capital Management — and Portfolio Manager on five of the firm's municipal bond closed-end fund-of-funds — says that the headwinds that made for big struggles in the muni bond space have shifted to become tailwinds, creating opportunity despite the strong recent rebound among muni bond funds. Browne says that the rising-rate cycle had led to discounts reaching the 12 to 15 percent range — a level previously only reached during financial crises — making munis about as cheap as they had ever been. Now, even after a run of more than 30 percent, muni closed-end funds are at the 70th percentile of cheapness, with "quite a bit of room to run."

Dana Staggs, President of Arrowmark Financial Corp., talks about how regulatory capital relief securities — bank-generated floating-rate notes that are currently producing yields of up to 15 percent — can function as an alternative investment. He notes that due to their emergence during the financial crisis of 2008, regulatory capital relief securities can also function efficiently in low-rate environments. Staggs says he believes the economy has "a lot of room to absorb continued declines in interest rates," and that banks are relatively healthy right now. However, he notes that concerns over potential troubles in commercial real estate can't be ignored.

  John Cole Scott, President of Closed-End Fund Advisors and the Chairman of the Active Investment Company Alliance, discusses interval funds and digs into the data on four funds that use the structure to create promising investment opportunities for investors. Plus, learn about the NAVigator Podcast's first-ever contest, in celebration of its fifth anniversary!  

Sean Feeley, part of the U.S. High Yield Investment Group at Barings, says he believes that with the bulk of interest rate adjustments happening at the short end of the yield curve, a wave of refinancing of shorter-term debt is coming, and that this typically makes high-yield investments look more attractive. Feeley expects the economy to avoid a recession, with strong balance sheets contributing to a soft landing situation that plays out into 2025.

John Cole Scott, President of Closed-End Fund Advisors and Chairman of the Active Investment Company Alliance, looks ahead to the fourth quarter on today's podcast. He discusses two equity and two fixed-income funds that hit his trifecta — an analytical mix of discount, dividend, and net asset value — and that he says look particularly promising for year-end portfolio moves.  

Miguel Laranjeiro, Investment Director at abrdn, says we are seeing "the beginning of a robust in-flow cycle into the muni space," noting that credit spreads and all-in yields are attractive and that the value of the tax exemption will particularly pay off now. He says he expects the Federal Reserve's long-awaited rate cuts will end the longest yield curve inversion ever for municipal bonds. Once the yield curve has normalized, Laranjeiro expects leverage costs to become a positive for the total return of levered muni funds, creating an additional impetus for investors.

Mitchel Penn, Managing Director of Equity Research at Oppenheimer and Co., says that while business development companies (BDCs) have struggled this year, they are positioned well to ride out the changing interest rate cycle. He says that when the Federal Reserve starts cutting interest rates, he expects BDCs to see higher fee income, though some of that could be offset by a higher level of defaults. However, he notes that because those defaults are a hangover from high-rate conditions, they have already been priced into many portfolios, creating a cushion against potential credit losses. Penn also discusses the kinds of BDCs that balance out the current risks and that historically have generated high returns on equity with low credit losses, naming several BDCs that fit that description.

John Cole Scott, President of Closed-End Fund Advisors and Chairman of the Active Investment Company Alliance, discusses how investors in funds trading at premiums can use sector swapping to turbocharge their gains. He describes a process where an investor sells out of funds trading at premiums and purchases similar funds trading at discounts, locking in profits and expanding the buying power of their money. He cites examples of how making swaps — even within the same fund family — could deliver instant advantages.

John Cole Scott, president of Closed-End Fund Advisors and Chairman of the Active Investment Company Alliance, explains how closed-end funds have responded historically to corporate actions like tender offers, liquidations, transitions to open-end funds, rights offerings, and big changes in dividend policy. He notes that understanding how those events play out gives investors a guideline on what to look for and how to act if they see those same actions in the funds they own.

Maury Fertig, Chief Investment Officer at Relative Value Partners, discusses how the changing interest rate picture is impacting considerations on the closed-end funds he is considering for client portfolios — and which areas of the closed-end fund universe look particularly attractive now. He also talks about how a number of BlackRock funds are performing in the wake of a recent tender offer.

Chris Oberbeck, Chairman and Chief Executive Officer at Saratoga Investment Corp., says that private credit — which has been on the rise for several years — is being challenged by a cooling market for mergers and acquisition activity. That has put pricing pressure on managers, which should ease a bit as rates come down and mergers and financing deals become easier to do.

Aaron Filbeck, Managing Director of the Chartered Alternative Investment Analyst Association (CAIA), discusses interval funds, their evolution, fee structures, and potential. He also responds to recent media coverage that has been critical of them as investment vehicles, including a recent Wall Street Journal article on how interval fund fees "will leave you high and dry."

Kimberly Flynn, Managing Director of Alternative Investments at XA Investments, discusses the state of interval funds, which have been growing rapidly and expanding their asset reach. It's not just the 50-plus funds on file and the entry of big players and new investment ideas, but also the recent rise in media interest. In the interview, Flynn responds to a recent Wall Street Journal article critical of interval funds and their fee structure. 

Duncan Farley, Portfolio Manager on the Developed Markets Special Situations team at RBC BlueBay Asset Management — manager of the BlueBay Destra International Event-Driven Credit Fund — says corporations that have been "dining out on cheap finance" now have indigestion because their debt levels, leverage, and costs have gone up, so "the math doesn't work." As a result, he's expecting trouble for corporate paper globally, with a sharp rise in default rates, though he notes that creates opportunities for special situations investors.