Discounts for Closed-End Funds Widen Again, Remain Attractive in Q4
Following consecutive quarters of discount compression, the universe of closed-end funds (CEFs) saw discounts widen again in the fourth quarter of 2024, averaging close to -6% and yielding about 9%, said John Cole Scott, AICA Chairman and President of Closed-End Fund Advisors (CEF Advisors), during his firm’s 52nd consecutive quarterly research call covering the CEF and business development company (BDC) universe.
Those results differ from the previous quarter, which saw discounts for the average listed CEF closer to -5% and yielding just over 8%. While those results may not differ dramatically, various fund types within the CEF universe saw wide discount percentage swings in Q4, potentially arising from the pricing impacts of a market bracing for change.
Combining discounts and modest fund leverage, CEFs continued to provide a significant boost to investors’ market dollar exposure in their portfolios in Q4 2024. Roughly $1.32 gross manager assets from the average -6% discount and 24.4% average leverage for the fund. “Closed-end funds’ uniqueness is that technical arm’s length relationship — though not fixed arm’s length — between market price and net asset value,” Scott said during CEF Advisors’ Q4 2024 review and outlook call on January 16, 2025.
CEFData.com tracks $919 billion in fund assets across 800 closed-ended management companies, which include traditional CEFs, BDCs, tender offer funds, and interval funds.
Asset Levels
Traditional listed closed-end funds ended the fourth quarter of 2024 with about $476.5 billion in total gross assets across 455 funds with an average size of $704 million. Those results include:
- Equity funds, with about $147 billion across 166 funds
- Taxable bond funds, coming in at $84.1 billion across 127 funds
- Tax-free municipal bond funds, with about $86 billion across 110 funds
- BDCs, with $160 billion across 52 funds
Nuveen and BlackRock once again led the pack in total gross assets, ending the quarter with $54.6 billion (across 45 funds) and $48.3 billion (across 51 funds), respectively.
Discounts
Scott said discounts were still pervasive at 82% for the total universe of CEFs, with only 79 funds trading above their book as of December 31, 2024. The average traditional CEF ended the quarter at about a -6.0% discount, compared to the 25-year average of -4.83%.
Digging deeper into the data for Q4 2024, Scott found that:
- Equity CEFs ended the quarter at about a -7.8% discount, with 12.2% leverage.
- Master limited partnerships averaged -6.7%, narrowing slightly by 0.6%.
- REIT / real discounts widened over the previous quarter (-1.1%) to -4.7%.
- Taxable bond CEFs also widened over the previous quarter (0%) to -1.1%.
- Preferreds averaged -5.1%, widening by -4.2%.
- Municipal bond funds ended Q4 at a -9.0% discount to NAV, widening by -3.4%.
- “We are off the bottoms of September 2023, but we are definitely not expensive,” Scott said of munis on the call.
- BDCs ended the quarter at a -4.0% discount to NAV, narrowing slightly by 0.2%.
On the topic of discounts, Scott shared his blueprint for active portfolio management: “Step into discounts when it meets your investment needs and your thesis … step away from narrow discounts and premiums most of the time … and be thoughtful on taxes.”
BDCs
“BDC performance has been very good … the structure has proved well, it’s been good for investors and the economy,” Scott said, pointing to the industry’s robust competition, fair expense ratios, lower cost exposure to quality managers, and transparency.
Listed and non-listed BDCs represent 43.3% of the universe of funds that CEFData.com tracks. BDCs in the fourth quarter of 2024 had roughly $405 billion in gross assets across 159 funds, including:
- 52 listed BDCs with $160 billion in gross assets
- 107 non-listed (private) BDCs with $245 billion in gross assets
Blackstone and Blue Owl continued to be the top BDC sponsors in terms of total assets under management, managing $77 billion and $63.8 billion, respectively. Ares trailed in third at $34.8 billion. Blue Owl managed the most funds — seven— in Q4, followed by Goldman Sachs with six and Golub Capital managing five.
There were just eight new public offerings for CEFs in 2024, five of them for debt BDCs. “The market has been so tough” for IPOs in light of active growth in interval funds and ETFs, Scott said, noting that interval funds are generally free from activism and ETFs are cheap.
Interval and Tender Offer Funds
Interval funds continue to grow in popularity, with most of the exposure in credit and real estate. There are now 116 non-listed interval funds with $110 billion in total assets under management (compared to that of listed CEFs of $476.5 billion across 455 funds).
Tender Offer Funds, a type of non-listed CEF, continued to grow as a sector, totaling 123 in number at the end of the quarter, with $87 billion in managed assets.
Since 2020, there have been far fewer ceased interval and tender offer funds due to more education on their structure, more available data, and managerial experience, Scott said.
Yield and Distribution
The average listed CEF generated a weighted yield of 8.8%, according to CEFData.com. Diving deeper into the numbers, Scott’s team found that:
- Equity CEFs show an indicated 8.9% yield, with 12.2% leverage
- Taxable bond CEFs show an indicated 10.5% yield, with 24.7% leverage
- Municipal bond funds show an indicated 6% yield, with 31% leverage
- Debt BDCs show an indicated 10.5% yield, with 48.5% leverage
Distributions increases for munis the past year were “not natural,” spiking much higher than other fund types for a total of 183. Munis also lead the industry in distribution growth at 40.4% per year, generally done for activist defense or activist “work-out” provisions. Distribution growth rates are generally up across the universe of listed CEFs, Scott said.
Activism
Activism remained a big focus of the CEF universe in Q4, and will continue into 2025, albeit with potentially diminished impact if discounts are kept under control, Scott said.
Activist investors are typically hedge funds or institutional investors that buy large stakes in CEFs and try to influence how they are run. Sometimes they are successful in narrowing discounts, but they can also “kill” funds, too — either by changing the fund’s fundamental structure from close-ended to open-ended, or liquidating it through cash disbursements to shareholders.
As of December 31, 2024, activists had $5.6 billion at work, led by firms such as Bulldog Investors, Saba Capital Management, Karpus Investment Management, SIT Investment Associates, and City of London. When accounting for their followers, Q4 saw a total of roughly $20.7 billion in activist ownership.
Activists and follower ownership at year end were focused on the following five sectors:
- BDC Debt: $4 billion
- General Equity: $2.3 billion
- Nat Muni (tax-free): $1.6 billion
- Asian Equity: $1.2 billion
- Hybrid / Balanced: $1.2 billion
Take Action
Register to hear a replay of CEF Advisors’ Q4 2024 review and outlook and download the slide presentation. CEF Advisors’ next quarterly call is scheduled to take place on April 24, 2025.
The first-ever AICA BDC Forum is scheduled for Wednesday, June 11, 2025, in New York City. Learn more about the event and register today.
The next Active Investment Company Alliance Fall Roundtable conference will take place in New York City on November 13, 2025. Explore videos and interviews from the 2024 event.
Explore CEFs and how they work and learn more about the increasing use of interval funds.
About CEF Advisors
Closed-End Fund Advisors is a SEC registered, fee-based registered investment advisory firm founded in 1989 with headquarters in Richmond, VA. If you’re looking for specialists in closed-end funds, look no further than CEF Advisors. For over 35 years, we’ve lived at the crossroads of CEF investing, research, and advocacy. We’re dedicated to making investment decisions based on the freshest, most accurate information, hand-compiled by our data team. Whether you’re looking for a fee-based registered investment advisor, searching for CEFs, BDCs, and interval funds or seeking detailed information to make your own data-driven investment decisions, trust CEF Advisors to deliver outstanding results. Visit CEFAdvisors.com to learn more.
About AICA
The Active Investment Company Alliance is a trade association founded in 2019 committed to educating and engaging investment professionals and investors about closed-ended management companies: listed and non-listed closed-end funds, business development companies, interval funds, and tender offer funds. As the industry’s balanced spokesperson, we advocate for our member firms’ funds, institutional investors, and seek to educate investors, and the advisors that serve them, about fund structures and specific strategies. Our primary methods of advocacy are through our weekly NAVigator podcasts hosted by Chuck Jaffe, video interviews with Jane King, articles, and events we conduct throughout the year.