Closed End Funds – A Niche In The Market
Doliver has been managing money for clients since 1988. 30 years. One very unique strategy is investing in closed-end funds (CEFs). A closed-end fund is a professionally managed portfolio of individual securities which has a specific value, called the “net asset value” (NAV). The NAV is derived from the sum of the total value of securities held in the portfolio, divided by the total number of outstanding shares. A fund’s NAV is a specific price per share and is calculated daily based on the closing market price.
Different from a mutual fund, a closed-end fund shares are not redeemable from the fund itself, based on the daily NAV. Instead, the shares of a closed-end fund trade on the major exchanges where the forces of supply and demand cause share prices to fluctuate. Since shares are bought and sold in the open market, at any given time, the share price of a closed-end fund may be greater (premium position) or less (discount position) than the NAV, thus creating potential pricing inefficiencies. As a simplified illustration, a closed-end fund investor may buy $1 worth of stock ($1 NAV) for 90 cents. Or, one may sell $1 worth of stock ($1 NAV) for $1.10. Of course, the converse may also be true. Although more than 550 different closed-funds exist today, with over $215 billion dollars in total capitalization, they represent a relatively small part of the overall market. This is our niche in the stock market.
Doliver offers several core quantitative investment solutions, each one targeting a different return objective, risk tolerance, and tax sensitivity.
The Equity Alpha strategy seeks above market returns with slightly less risk than the equity market. The strategy seeks to generate excess return by combining attractive closed end fund positions with exposure to U.S. equity market. The strategy targets 80% of the risk of the equity market while seeking to generate excess return (alpha) from the closed end fund component. Due to its low portfolio turnover, a substantial amount of gains are long-term capital gains.
The CEF Tax Efficient strategy may be most suitable for tax sensitive investors looking for less risk than the equity market. The strategy seeks to capture inefficiencies in closed end fund discounts with about 60% of the risk of the equity market. Due to its low portfolio turnover, the strategy produces mostly long-term capital gains.
The Long/Short Fund seeks to generate above average returns with less downside risk compared to U.S. equity markets. By investing 200% long and 150% short, the 50% net exposure to the market provides cushion during market downturns compared to a traditional long only strategy. The Fund uses a systematic rules-based investment process to generate a portfolio of stocks based on a set of value, momentum, quality and other proprietary factors.
The Managed Volatility strategy seeks to improve upon the risk-adjusted return of the S&P 500 Index. The strategy focuses on enhancing the return of the S&P 500 Index with covered calls and reducing the risk through protective puts. Using advanced quantitative methods, statistical features of equity market returns are used to strategically adjust strike prices and quantities of call and put options.