Despite the fact that the Dow Jones Industrial Average and the S&P 500 Index both set all-time highs again in May, for the first month in nineteen both the equity and fixed income CEF macro-groups posted negative returns on a NAV basis. Equity CEFs declined for the first month since October 2012, losing 0.67% for May, and fixed income CEFs returns turned red for the first month in three, declining 1.55% for May.
REUTERS/Sergio Moraes
Late in the month investors began showing a little rally fatigue after Fed Chairman Ben Bernanke told Congress the central bank could start reducing its bond-buying program over the next several months and after some pundits began questioning the staying power of Japan’s “Abenomics.” Despite a lackluster earnings season that generally showed unimpressive revenue growth, many U.S. stocks hit new 52-week highs during the month and the S&P 500 posted its seventh consecutive month of plus-side returns, up 2.08% for May. However, prospects of the Federal Reserve beginning to reduce its bond-buying stimulus rattled market constituents.
Despite the selloff in equities toward month-end, investors continued their month-long trend of pushing Treasury prices lower on concerns the Fed will slow the pace of its bond purchases, which sent benchmark ten-year Treasury yields to their highest close since April 5, 2012. After hitting a closing low of 1.66% early in the month, Treasury yields generally rose, ending the month up a whopping 46 basis points (bps) at 2.16%
For May only 26% of all CEFs posted NAV-basis returns in the black, with 46% of equity CEFs and a measly 14% of fixed income CEFs chalking up returns in the plus column. Investors eased their foot off the equity gas pedal after Bernanke’s testimony to Congress but kept an eye on the final reading of the Thomson Reuters/University of Michigan’s May consumer sentiment index, which was revised up to 84.5—its best showing since 2007.
Source: Lipper
Only five of Lipper’s twelve equity CEF classifications posted returns in the black for May, while all of Lipper’s municipal debt CEF classifications after getting caught up in the flight out of Treasuries and mortgages, posted negative NAV-based returns for May. For May the median discount of all CEFs widened 320 bps to 6.23%.
To read the complete Month in Closed-End Funds: May 2013 FundMarket Insight Report, please click here.
