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What the Big Guys Are Buying (and Selling)

A look at ownership data can provide a more detailed look at what mutual funds and institutional players are buying and selling. 

Cara Esser, 01/25/2013

While most closed-end funds, or CEFs, are owned by individual investors, a number of institutional investors also own shares. This week, we take a closer look at who is buying and selling certain CEFs using data from the Ownership tab on Morningstar.com. The Ownership tab provides a detailed look at which specific funds and institutions are buying and selling shares of individual CEFs and how that ownership has changed over time. In addition, a list of the fund owners’ investment style as it falls into the Morningstar Style Box can provide some context about how the CEFs are being used.

The table below highlights the top five funds ranked by the number of new buyers and the five funds with the most number of investors selling their entire stake. This data is gathered from portfolio holdings of mutual funds, ETFs, CEFs, and institutions and is updated quarterly or monthly, depending on the fund or firm.

It's not surprising that the most-bought funds are also some of the largest CEFs in the universe, and most have relatively high distribution rates. Templeton Global Income GIM, an unleveraged bond fund run by Michael Hasenstab, has the lowest distribution rate of the group paying just over 4% at net asset value. That's low for CEFs, but it's not bad compared with similarly invested mutual funds, ETFs, or even the long-term Treasury rate. About 10% of GIM is owned by institutions and other funds, and many of the owners have added shares since their last portfolio updates. Notably, Cohen & Steers CEF Opportunity FOF (a CEF of CEFs) upped its share count by nearly 25% during the last quarter of 2012. On the other hand, the largest institutional holder, Morgan Stanley Smith Barney, shed about 7% of its shares during the third quarter of 2012, and Barclay’s Capital reduced its holdings by nearly 70%.

Also of note, the top three fund owners of Silver-Rated DNP Select Income DNP are a who's who of CEF-focused funds: exchange traded fund PowerShares CEF Income PCEF, mutual fund RiverNorth Core Opportunity RNCOX, and FOF. Together, these funds own only a small portion of the total outstanding shares, but each has increased its allocation to DNP recently. Notably, RNCOX added more than 450,000 shares to its 250 shares, boosting its total holdings by nearly 2,000%. The fund’s historically rich pricing reached 35% in June 2012, only to collapse in the fourth quarter to just over 10%. Investment strategies that rely on valuation screens to find potential investments would have seen this dramatic pricing drop during the second half of the year as a potential buy signal.

Missing from the most-bought list is the largest CEF, Central Fund of Canada CEF. While this Bronze-rated fund has a good amount of ownership from both other funds and institutions (about 13% of its total assets), some big owners sold shares in the last quarter of 2012. Columbia Global Opportunity IMRFX, one of the largest fund owners of CEF, got rid of 11% of its stake. To be sure, the Gold fund is still the mutual fund’s single largest holding, accounting for 4.5% of assets. Since the start of 2011, ownership by funds and institutions has dropped from about $80 million to $70 million.

Of the most-sold funds, Bronze-Rated India Fund IFN has particularly high ownership by institutions of more than 18%. The fund’s largest stakeholder is City of London Investment Group with 10% of the fund’s assets. The firm recently upped its stake in the fund by 12%. While the fund did have a large number of sellers over the last two quarters, the actual ownership increased slightly over the year.

Finally, Bronze-rated Nuveen Municipal Value NUV is the largest muni fund in the CEF universe. It had a significant drop in institutional ownership in 2011, from $12 million to $9 million, but has seen a slight pickup to just over $10 million at the end of 2012. Despite the overall uptick in ownership, a number of institutions and funds sold shares during the second half of 2012 when NUV’s premium reached a nearly three-year high of 3.6%. One of the biggest sellers was Gold-rated TFS Market Neutral TFSMX, which sold nearly its entire stake in the fund.

Cara Esser is a closed-end fund analyst at Morningstar.

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