In October the market took investors on a wild rollercoaster ride—for one of the scariest months of the year. Volatility was on the rise, with the S&P 500 losing more that 5% in the first half of the month before rallying over 8% in the final two weeks. In 16 of the 23 trading days of October the Dow Jones Industrial Average made triple-digit moves, gyrating wildly on the plus and minus sides. Investors were assaulted by news of Eurozone weakness, declining global growth, and new cases of Ebola in the U.S. Nonetheless, as better-than-expected third quarter earnings reports and generally strong economic reports surfaced, both equity and fixed income CEFs managed to post positive NAV-based returns (+0.38% and +0.89% on average, respectively) and market-based returns (+0.44% and +1.39%, respectively) for the second month in three.
REUTERS/Hannibal
For the month 80% of all CEFs posted NAV-basis returns in the black, with 63% of equity CEFs and 92% of fixed income CEFs chalking up returns in the plus column. Rising geopolitical concerns, glimpses of Europe’s slowing economies, and global health concerns about Ebola continued to weigh on Lipper’s World Equity CEFs macro-classification (+0.05%), pushing it to the bottom of the equity CEFs universe.
On the equity side (for the second consecutive month) mixed-asset CEFs (+1.10%) outshone the other macro groups, followed by domestic equity CEFs (+0.34%). Lipper’s Real Estate CEFs classification (+5.35%) led the equity universe, benefitting from investors’ search for income-producing securities. After its large pullback in September (investors took advantage of the buying opportunity and the classification’s outsized yields as a result of trading at deep discounts), the median discount for Real Estate Funds was 11.53% at month-end.
Despite the FOMC’s policy decision, which announced the end of its stimulus program, geopolitical and Ebola-related health concerns weighed on yields as investors sought the safety of Treasury bonds during the month. Investors pushed the ten-year yield down 17 bps to 2.35% at month-end, helping rally the prices of fixed income instruments. Municipal bond CEFs (+1.15%) remained at the head of the class, with all classifications in the subgroup experiencing returns in the black for the tenth consecutive month as investors still found buying opportunities. The muni CEFs group was followed by world bond CEFs (+0.79%) and domestic taxable bond CEFs (+0.55%).
For October the median discount of all CEFs narrowed just 11 bps to 9.29%—deeper than the 12-month moving average discount (8.57%). Equity CEFs’ median discount narrowed 61 bps to 8.81%, while fixed income CEFs’ median discount widened 6 bps to 9.46%.
To read the complete Month in Closed-End Funds: October 2014 FundMarket Insight Report, which includes the month’s closed-end fund corporate events, please click here.
