In this interview from the “Money Life with Chuck Jaffe” podcast, John Cole Scott, President of CEF Advisors, discusses his “trifecta analysis” of closed-end funds and how he will frequently add or drop funds to take advantage of market conditions and make the most of tax circumstances, capturing incremental gains and minimizing incremental losses to squeeze the client’s desired result in their portfolio.
CHUCK JAFFE: Hi, it’s Chuck Jaffe, host of The NAVigator podcast from the Active Investment Company Alliance, every weekday I also host an hour-long interview program called Money Life, and our show on September the 2nd featured John Cole Scott, president of Closed-End Fund Advisors, the chairman of the Active Investment Company Alliance, in a feature called the “Money Life Market Call”. Since the focus of that conversation was all about the way John invests in closed-end funds, we wanted to make sure you got a chance to listen in, so here it is as a bonus episode of The NAVigator. Enjoy! John Cole Scott, president of CEF Advisors is here, we’re talking closed-end funds, welcome to the Market Call. This is the Money Life Market Call, the part of the show where we talk with experienced money managers about how they do their job, what they look for that determines their buys and sells, what they see happening broadly on the market and how they put it all together. Returning to the Market Call today for the first time since 2019, John Cole Scott, he is president of CEF Advisors, he is the chairman of the Active Investment Company Alliance, and he’s been on the show plenty of times since 2019 but he hasn’t been on the Market Call. John of course, as president of CEF Advisors, chairman of the Active Investment Company Alliance, is on The NAVigator, our closed-end fund segment, all the time. But he’s here in part because, a, he’s helping me out, as you know if you listened to the beginning of today’s show, we had some adventures over the holiday weekend and we were going to be scramble in mode, and John and I happened to correspond over the weekend and he’s like, “Hey, you need a hand?” Glad to get him. But also I wanted him back because, well, if you are familiar with John when he was on the show in 2019, and until recently we would always say Closed-End Fund Advisors, that was the firm started by his father George Cole Scott, it’s now CEF Advisors and they have combined the two websites, they used to have a website for the firm and a website for the data, but it is now CEFData.com. And although we’re going to be talking closed-end funds and BDCs here, you should know that the website now includes some research, not every ETF out there, but what they’re calling their ETF Select Files, and that’s currently more than 300 US-listed ETFs that John will explain how they’re using them, but if you’re looking for more information on ETFs you will find it here as well, and maybe someday we’ll have John back on the show doing the Market Call on ETFs, but today focused on closed-end funds, and if you want to get more information, if you want to see how your funds stack up, CEFData.com. Enough of all that, John Cole Scott, thanks for coming back to the show.
JOHN COLE SCOTT: It is so fun to be back with you, Chuck.
CHUCK JAFFE: So this is a different one for us because we’re just digging into the methodology, we’re not covering the big, broad closed-end fund industry, we’re just looking at how you do it. So the Market Call of course always starts with methodology, and you buy a lot of closed-end funds, but we need to know what it is that makes the ones that you buy stand out to you and what it is that makes you kind of sour on others.
JOHN COLE SCOTT: Sure. So it starts with a base case of thinking of an asset allocation for clients, generally for our clients at CEF Advisors, the minimum allocation is roughly 35% equity funds, roughly 30% credit funds, [inaudible 0:03:25] 95% of our resources we work with, and we generally put 2% to 4.5% as a general allocation for a fund, that lands about 30 to 40 funds in a portfolio, we put BDCs as a credit fund. At a high level we always want to look at the NAV, the manager, the sector as one core piece of our trifecta analysis, that could be the expense ratio, the performance, just really how they’re doing their leverage and what their beta is, all the nuance of the regular NAV of the management team, how they’re putting stuff to work for their shareholders. The second piece, not uncommon, it’s a dividend analysis. How is it overpaying, underpaying? How’s it classified for taxes if you’re a taxable client? Very important to understand whether there’s return of capital that’s benign or destructive in making those decisions to own or not own a fund or how to own the fund. And thirdly, so common for closed-end funds is discounts, but as you know, we talked for many years, it’s not just absolute discounts, it’s relative, peer group, and what’s likely to happen based on the environment we’re in data-wise, economically, with discounts it could happen for an equity fund or a credit fund. That’s the trifecta, we put ‘em together, there’s no perfect fund, Chuck, we try to make a portfolio of the best weighted allocation to get us the most certainty for those three important things for our clients.
CHUCK JAFFE: One of the things is that you are what some people would call a dynamic allocator, you’re going to be moving money around, and one of the things we talk about as we get towards the end of every year with you is tax-loss selling and making the most of your tax benefits, closed-end funds are great for that. You kind of say, “Oh, I bought a fund in this space, it hasn’t performed well since I bought it, I’ll take the loss, I’ll cycle over,” but how much buying and selling do you do in the interim period? In other words, if you’ve got a fund and it’s muddling along and you’re thinking, hey, I’ll be watching this at the end of the year, but here we are in August, or getting into September, do you do much trading and swapping in the middle of the year if a fund is just kind of on an ordinary path?
JOHN COLE SCOTT: Yes, so what I can say is we are both very active for taxable clients with terrible taxes and those in qualified plans that don’t care about taxes. It often stems from most of our clients, about a third of them don’t really take any meaningful yield out of the portfolio, so every month and quarter there’s all this surplus to invest, and then we’re deciding what can we nudge and rotate with the updated economic data and the ways to make select choices in focusing those dollars every month, but even for those taking money, it’s just a smaller amount of money but we do that for them as well. We’re looking at that, honestly, there were big trades, gains we took in January for a couple of funds from years ago and now I’ve done tax-loss selling for some our clients six times before September because I’m trying, I took some long-term capital gains that were terribly beneficial because we made money, but terrible for taxes, so now I’m looking for every meaningful loss almost weekly for our larger clients, trying to make their taxes generally less terrible next April. Again, if the market goes up 20% from here, we’ll take it, but we’re going to try to capture every relative loss to make it more nuanced, and also we’ll lean between sectors, whether equity sectors or credit sectors, whether high yield or senior loan, infrastructure versus MLP, based on where we feel the NAVs are. Healthcare now feels kind of cheap, so we’re overweighting that relative to other funds because we think there’s more upside to different sectors for the next three to six months.
CHUCK JAFFE: I’m going to get back to that in a second, but how much does this mean that functionally you’re dating your funds, you’re not marrying your funds? Because it’s important for people to understand that difference, as an individual investor who buys closed-end funds, which I do.
JOHN COLE SCOTT: Yep.
CHUCK JAFFE: I want to hold them for a while, I’m not looking. I’m looking for the income component or whatever it is that I want, I want to narrow the discount, I want to do all those other sorts of things, and yes, I would move if I saw something dramatic happen. But without that dramatic thing, I would prefer to have a fund that I can hold for a long time and be satisfied with. That’s not always the way you see it.
JOHN COLE SCOTT: So there are funds that we like the NAV and we’re always looking whether we should be adding to it, or even funds we’ve loved recently but we’ve papered off because they’ve gotten too expensive in our opinion, but you’re definitely right. For almost 14 years I have built what I hope to be the best nuanced data business in this universe because I need it, my partner Dan Silver needs it, not everyone needs it to be honest, but we have it. If you hire us as a firm, we’re charging you a fee, we don’t work for free, our fees aren’t terrible but they’re not zero, and so we must figure out a way to take incremental gains, cut incremental risk, and be intelligent but diversified so our retired investors can go and see their grandchildren, go on vacation and not worry about the headlines because we built a system to do that. We always say the funds that you own don’t know what you paid for them, so don’t worry. If you have a big cost basis loss but still a great fund and good sector, you just timed inadvertently, doesn’t mean you should sell it because it has a big red number. If you have a huge green that’s a qualified account but still a reasonable discount and you like the fund, there’s no reason to sell because you made money, because it’s still a good forward-looking expectation.
CHUCK JAFFE: So you talked about liking healthcare, but you also talked about how you will be making moves based on what you see with the broad economy, what’s happening with policy and other things along those lines. So what are the areas of the market you like right now?
JOHN COLE SCOTT: I mean, right now I would say healthcare is an overweight on the equity side, we also really like the preferred equity market because you’re getting a little bit less duration and still some reasonable discounts, and we find a lot of the leverage-adjust NAV yields in those sectors are well below what preferreds are currently yielding, so we feel like the dividend upside is more secure than the dividend downside, which we never know what’s going to happen but we love that tailwind of possibilities. And then we also, inflation is a real thing, so we overweight right now MLP funds versus infrastructure at the firm generally speaking for most clients, but when there’s discounts, deeper discounts help you lean into the sectors you should possibly overweight because discounts often revert, and if you can wait for more discount volatility and relatively good core funds, you can maybe make some extra money or at least avoid losing money in the future potentially at least.
CHUCK JAFFE: And are there areas of the market right now you can’t stomach?
JOHN COLE SCOTT: I mean, honestly the hard stuff, and this is partially not why we have the ETF file, that’s been a slow program, but a lot of the taxable bond funds are trading at one or two discounts to one to three or four premiums, even the names that aren’t generally that high, so we’ve had to underweight and downsize the core funds, so down to like a 2% if we really like, from maybe a 4% position. And then honestly, this is where I’ve used some ETFs, there’s better active ETFs now than when my father was managing money and hated the structure, where you can sit in a lower yielding taxable bond fund in the ETF space and expect to wait for discounts to move 5-10% in theory and then rotate back, and that’s the way we are using them more likely, waiting for the discount downside in a way that we weren’t even six months ago.
CHUCK JAFFE: So let’s get down to brass tacks, what’s a fund that’s kind of the poster
child for the methodology right now?
JOHN COLE SCOTT: Yeah, so looking at the MLP space, there’s a Neuberger Berman Infrastructure Income Fund, NML, it’s been on the podcast a lot I believe over the years, but it’s almost a 9% discount, and one thing we love, about an 8% yield, looking at the leverage-adjusted NAV yield, and it’s only 6.2%, which is very, I’ll say easy, versus the index of what the manager’s doing. I mean, look at the leverage amount and the leverage costs, and the NAV of it, it’s a very good fund in this space. The discount could widen but it also could narrow, and it’s a great active manager that’s well regarded in this area, and the beta’s not even that high relative to its peer group so it’s a great example of a good core fund with possibly some discount tailwind going forward.
CHUCK JAFFE: So again, that’s NML, the Neuberger Berman Energy Infrastructure and Income Fund. What’s something that’s the evil poster child, the poster child for what you’d want to be selling right now?
JOHN COLE SCOTT: Well, so there’s a PIMCO fund which is a great asset manager, but PHK, the PIMCO High Income Fund is at a six and change premium, seven and change over a peer group average, the manager has to hit over 11% to fuel that. If you look at its leverage cost, it’s over 7% and it’s only 10% levered, and so it’s a really hard dividend to hit in our opinion over the long run. The net asset value performance actually is better than a peer group average, but we’re in a relatively benign market, there’s a lot of things that could break apart in that fund, dividends go down, discounts widen, a market event, that just tells me that while it’s not the lofty premium it had in yesteryear, it’s still not an easy, I would argue, safe place to hold your money, and a great place to rotate even to an ETF or a discounted closed-end fund and wait to see what happens, if that widens out, maybe buy it back.
CHUCK JAFFE: And PHK, PIMCO High Income has traded at a premium for a long time, so that’s a problem as well. You’d go, okay, well, hey, it’s gotten to a premium and it’s gotten overvalued potentially, but chances are pretty good that a lot of investors bought it at a premium at this point, didn’t they?
JOHN COLE SCOTT: Possibly, but see I talked to a prospect last week, he’s owned it for a while, the NAV has outperformed, the discounts is relatively narrow historically speaking. I told him, “You’ve won double twice. This is a qualified account, take those gains and let’s do something else with it because you’ve made, I’d argue excess money.” 4It may not stop, nobody knows the future, as you know it NVIDIA keeps going up, but it’s a great way to say we’ve made some money, take it, pause, you can always come back, there’s hundreds of funds to choose from, not just a few.
CHUCK JAFFE: Well, now we’re going to get your quick and dirty take on some closed-end funds that my audience is particularly interested in. Well, we hope we’re making your day as we talk with John Cole Scott, president of CEF Advisors, he made my day by making it that we didn’t have to do a rebroadcast or something else to fill in for a hole, so I appreciate that, but you should appreciate the information you’re getting. If you want to get more information, CEFData.com, their new, improved website, and if he doesn’t talk about your favorite funds, you can go look ‘em up and find out what the firm is thinking about ‘em or how they evaluate them. You know how “Quick and Dirty” works, again, you can send us requests for everything, stocks, mutual funds, ETFs, and of course closed-end funds, Chuck@MoneyLifeShow.com. We’re going to start with a request we got from Dave in Jacksonville, Florida, he wants to know about FFC, that’s Flaherty & Crumrine Preferred Securities. You said you liked preferreds.
JOHN COLE SCOTT: I do, and this is one of those managers that’s well regarded in this sector but probably unheard of outside of closed-end funds. It’s almost a 7% discount, its yield is just over 7% as of the most recent data, and again the leverage-adjusted NAV yield is well under, it’s four and high change, it’s, I would argue, very easy for this manager to pick what they want, almost regardless of the yield of the preferreds to add really good value. Its leverage cost is very reasonable, its leverage amount is very reasonable, so it’s just a really good example, and the duration profile is just over five and mid change, and so it’s not a huge [inaudible 0:14:47] interest rates either way. Dividend’s tax-advantaged, not tax-free like a muni, but it’s a great place to build a better quality income piece to your portfolio at a reasonable discount. You may remember, Chuck, preferreds in benign periods, usually the whole bucket, almost all trade above par, so that could be a future for that sector and this fund.
CHUCK JAFFE: Yep, it’s a buy on FFC, Flaherty & Crumrine Preferred Securities. Rick in York, Pennsylvania gets our next request, it’s for Calamos Long/Short Equity & Dynamic Income, that’s CPZ.
JOHN COLE SCOTT: CPZ is one of those CEF 2.0’s of yesteryear, pre-Covid, it’s only at just below a 6% discount, but that’s relatively wide for the universe of funds we can choose from, we like it a lot here. We like that its beta is actually 0.19 versus SPY on a two-year weekly basis, and it really has a nice yield of just over 10%, but really only seven and mid-change because of that discount and leverage, which we feel is a durable number that’s repeatable by the manager over periods of time, and so it’s a great way for a low-beta NAV, somewhat of a discount, getting some income in the portfolio, but you don’t have to worry, generally speaking, markets rising heavily or falling because this doesn’t have a high beta allocation to equities. We use it a lot at our firm for our clients, we loved it at a 15% discount, we still like it at a 5%.
CHUCK JAFFE: Yeah, you can look at all the money you’re making, it’s a hold on CPZ, Calamos Long/Short Equity and Dynamic Income Trust. We sometimes say, good company, bad stock, this is good fund, not yet priced for adding more, but worth holding. Dale in London, Ohio gets our next request, it’s UTF, Cohen & Steers Infrastructure.
JOHN COLE SCOTT: Well-regarded manager, a sector that really uses the closed-end fund wrapper well, but unfortunately it’s a three and change premium. Its yield is 6.98%, so not an aggressive number, I don’t worry about the yield here but the pricing’s just too much. This is a simple argument for a utility ETF and wait, because it’s a great manager with a great fund but I don’t want to worry about the weekend, tomorrow, in a position trading well above NAV when it doesn’t likely live there for months at a time in the probable future.
CHUCK JAFFE: Yeah, you got to where you’ve got the premium, now you want to take that profit. It’s UTF, Cohen & Steers Infrastructure, a sell. Our last two requests go to Al in Orchard Park, New York, the first is for PGIM Global Short-Duration High Income, GHY.
JOHN COLE SCOTT: So this is one of those funds that was one of our core favorites for years thinking interest rates were going to rise, but it’s now trading like many of its peers, slightly over net asset value. I’d also say its leverage cost is close to 8%, and so it’s just another example of a great manager that we love at a discount, another example of maybe a high-yield fund at a small discount, maybe a multi-sector fund at a small discount, or an ETF, that can happen too. It’s a good fund but it’s risky today because we don’t know the future.
CHUCK JAFFE: Yep, and you have gotten ahead to a point, that’s why PGIM Global High Yield, GHY, is a sell. And last, again for Al in Orchard Park, Tekla Life Sciences, ticker HQL.
JOHN COLE SCOTT: So this is one of the older closed-end funds, goes back to the eighties, and it’s a seven and change discount. As I said, one of our overweights versus the market is healthcare based on our feelings for where it sits at a NAV, and this discount’s attractive. However, it should be noted the yield is 12%, which is a little bit higher than we would prefer, it used to have a 2% a quarter, which tells me that if you want to bake that into this math, it’s about 8.8% of that yield is more long-term durable. So the key with this fund is we want to own it for NAV, we like the discount, it definitely pays us quarterly, but you should reinvest about 3% of the cash flow back into the portfolio, either this fund or somewhere else, or there is a risk in the future, but a great use of the wrapper, a great manager, and a great fund to own today with that caveat.
CHUCK JAFFE: So yeah, you’ve got to be somewhat worried, although it’s the problem you kind of want to have. Yeah, you’re trying to figure out what to do with all the cash on that yield from HQL, Tekla Life Sciences, that was a buy but a cautious buy, a caveat on that buy because of the yield there. And speaking of good buys, we have to say our goodbyes, but John, thanks so much for stepping in, I know we’ll be talking again soon, I look forward to that conversation already.
JOHN COLE SCOTT: Always a pleasure, Chuck.
CHUCK JAFFE: That’s John Cole Scott, he is the president at CEF Advisors, go check out their new website, CEFData.com, or their updated and upgraded website, look there not only for your closed-end funds, but your ETFs. And we’ll come back, we’ll put a bow on this show, we’ll let you know what’s coming for the rest of this week and cross the finish line together. Also, something quirky about Quick and Dirty here today.
Recorded on September 9th, 2025
