These Closed-End Funds Are Selling at Year-End Discounts

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It’s the most wonderful time of the year for bargain hunters.

That is assuredly not the case in stores, where 2021’s supply-chain issues have made markdowns scarce ahead of the holidays. But in an obscure corner of the investment world, closed-end funds, some hefty discounts have appeared.

These bargain-priced CEFs were brought to our attention by David Tepper, the eponym of Tepper Capital Management, which specializes in these funds, rather than by the investor with the same name who owns the Carolina Panthers in the NFL.

Tax-loss selling in these CEFs may be behind some of their markdowns, he suggests. With the major stock indexes at or near records, investors likely are sitting on pretty gains. Offsetting them with losses is a classic strategy to lower capital-gains tax bills, as is using tax-loss carryforwards that may have come out of 2020’s market meltdown.

In addition, Tepper says, many of these CEFs made their initial public offerings in the last year or so, noting that many have traded lower in the months after their market debuts. (Some of them are also making repeat appearances from a Barron’s screen last month featuring post-IPO CEF markdowns.) The stock market’s bumpy performance in recent weeks probably has had an impact on these CEFs as well, he adds.

All of these funds come from well-known asset managers, including the biggest in the business. Tepper points to three

BlackRock

funds, including the BlackRock Capital Allocation Trust (ticker:

BCAT
), which is managed by a team led by Rick Rieder. They also manage the open-end BlackRock Global Allocation Fund (MDLOX), which has a four-star rating from

Morningstar
,
the fund tracker. 

In addition, BlackRock last month announced buybacks of some of its discounted CEFs, including those in the table at the end of this article. Share repurchases tend to narrow CEFs’ discounts, all else being equal.

Tepper also notes the Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund (

PTA
) is similar to some of the firm’s other closed-end offerings, such as the Limited Duration Preferred & Income Fund (LDP). But the newer Tax-Advantaged Preferred Securities & Income Fund trades at a discount of about 8{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}, while the older Limited Duration Preferred and Income Fund commands a premium of about 4{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}. So for those whose investment credo starts with “buy low,” the choice is obvious. 

(To review, CEFs issue a set number of shares, which trade on an exchange, such as the New York Stock Exchange, at a price that may be a discount, or a premium, to their net-asset value. Often those premiums or discounts appear unrelated to values in this inefficient market.) 

Two groups of CEFs were provided by Tepper, first those that would appeal mainly to income-oriented investors. The second group is more for total returns. In full disclosure, he is a buyer of some of these CEFs. 

For those shopping in a very richly priced asset market, these CEFs offer some relative bargains.

Income Funds / Ticker	Price	NAV	Discount	Price Change From IPO	NAV Change From IPO	Yield
BlackRock Capital Allocation / BCAT	$18.97	$20.88	-9.15{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}	-5.15{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}	4.40{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}	6.59{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}
Thornburg Inc. Builder Opp. / TBLD	18.27	0.07	-8.97	-8.65	0.35	6.84
Cohen & Steers Tax-Adv. Pfd. Secs. / PTA	23.51	25.53	-7.91	-5.96	2.12	6.64
PGIM Short Duration HY Opp. / SDHY	18.15	19.64	-7.59	-9.25	-1.80	7.14
Western Asset Divers. Inc. / WDI	18.21	19.69	-7.52	-8.95	-1.55	7.71

Total Return Funds / Ticker	Price	NAV	Discount	Price Change From IPO	NAV Change From IPO	Yield
Neuberger Brmn Next Gen. Connect. / NBXG	$17.09	$20.27	-15.69{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}	-14.55{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}	1.35{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}	7.02{e9f0aada585b9d73d0d08d3c277fd760092386ec23cac37d50f4b8cd792b062a}
BlackRock Innovation & Growth / BIGZ	14.49	16.56	-12.50	-27.55	-17.20	8.28
BlackRock Health Sciences II / BMEZ	22.99	25.68	-10.48	14.95	28.40	7.57(a)
Virtus AllianGI AI &Tech Opp. / AIO	27.09	29.94	-9.52	35.45	49.70	5.54

(a) excludes capital gains distribution, ex-dividend Dec. 16.

Source: Fund web sites, data as of Dec. 10

Corrections & Amplifications: The BlackRock Capital Allocation Trust is managed by Rick Rieder, not Russ Koesterich. An earlier version of this article incorrectly identified the manager as Rick Koesterich. 

Write to Randall W. Forsyth at [email protected]