John Cole Scott, President of CEF Advisors, discusses a topsy-turvy third quarter for closed-end funds, in which prices fell roughly twice as far as the portfolios underneath them, but income mostly held up. Scott, who also serves as chairman of the Active Investment Company Alliance, says that resulting widening of discounts was particularly noticeable in taxable bond funds, which reached “the 99th percentile of cheapness,” a level seen previously only during times of extreme market stress. Scott also discusses using hybrids like convertibles and preferreds, how convertibles had a tough quarter but saw discounts widen mildly, while preferreds had a more average quarter and saw discounts widen dramatically, highlighting why preferreds are safer during times when interest rate fluctuations are uncertain or rising, whereas convertibles tend to be a better opportunity when rates are clearly falling.