CEF Specialist

A Calm Quarter for Closed-End Funds

Cara Esser, CFA
Jason Kephart, CFA

It was a relatively quiet quarter for closed-end funds as stock market volatility remained low and the Fed's interest-rate hike was widely anticipated. There were three CEF IPOs in the first quarter of 2017, and each was a term fund with windup provisions in 2022. In sum, those three funds (all falling into the high-yield bond Morningstar Category) raised less than $600 million in assets. Below, we provide an overview of the quarter for the bond and equity markets followed by performance, discount, and valuation data for CEFs.

Market Overview: Bonds
The riskiest bonds outperformed sharply in the first quarter, with particularly strong performances coming from funds in the emerging-markets bond and emerging-markets local-currency bond categories. Gains in the Mexican peso, which had struggled since 2015 and plunged following the U.S. election, helped buoy many funds despite continued tension between Mexico and the United States. Other key emerging markets, including Brazil--which has encouraged investors with recent reforms--and Russia, also surged. World-bond funds with significant exposure to emerging-markets debt benefited from that strength. Corporate debt was another winner for the quarter. The convertibles category flourished thanks in part to solid returns in the equity markets. Meanwhile, despite a modest loss in March, the high-yield bond category enjoyed healthy gains as default rates continued to decline.

Cara Esser, CFA does not own shares in any of the securities mentioned above.
Jason Kephart, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.