Second Quarter 2016 CEF Review

Following the solid first quarter performance for closed-end funds (CEFs) when the average CEF was positive by 2.73%, the positive momentum continued during the second quarter, with the average CEF up another 6.33%. Indeed, after grinding through a challenging 2015 (particularly the back half of the year), diversified CEF investors have been rewarded with very strong total returns year-to-date with the average CEF now up over 9% through 6/30/2016 (source: Morningstar. All data is share price total return data).

The positive gains were broad based during the quarter with equity CEFs up an average of 7.94%, taxable fixed income CEFs up 6.06% and municipal CEFs up 6.12%. While each category of the CEF marketplace has different factors which impact performance, broadly speaking, some of the factors which continue to benefit many CEFs include: higher equity prices (particularly U.S. equities), declining long-term rates and continued "Plow Horse" (as our Economics team phrases it) economic growth in the U.S. economy which helps to create a positive backdrop for many credit sensitive CEFs. Lastly, high distributions and attractive discounts to net asset values (NAVs), particularly for equity and credit sensitive categories (more on that below,) also helped to attract buyers to the secondary market during the quarter.

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Posted on Wednesday, July 20, 2016 @ 10:36 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.