Seizing New Opportunities
Key Takeaways
02
Methodology
CEF Characteristics and Use of Leverage
CEF Asset Classes and Impacts
Why CEFs Remain a Niche Product for Advisors
View Key Takeaways
View the Report
What Drives CEF Usage
01
03
04
Sponsored by:
in Income Investing and Closed-End Funds
Introduction
Watch the Webinar
Seizing New Opportunities in Income Investing and Closed-End Funds
Share this page
Previous | Next
“We have 52 company restaurants, making us the largest operator of the restaurant brand. So, we are right there next to the franchisee. We know exactly what it takes to run them and what it takes to build them and what the challenges are, be they labor or food or whatever.”
- Scott Deviney, CEO, Chicken Salad Chick
In the wake of a tumultuous 2022 — a year that saw losses in equity and fixed-income markets as well as a sharp upswing in inflation — many investors approaching and in retirement have become anxious. They wonder whether their battered investments will be sufficient to provide them with the retirement income they need to maintain their lifestyle. That remains a key question among investors today and a concern for their financial advisors as well. Closed-end funds, pooled investment vehicles introduced in the U.S. 130 years ago, offer unique income-producing features and may be particularly attractive in the current environment. Yet the funds often are overlooked by advisors, even though many of their clients are seeking income-producing investments. To find out why this is the case, Wealth Management IQ in partnership with Nuveen recently conducted an indepth study about advisorsʼ attitudes toward closed-end funds and their experience with the products. This white paper presents the highlights of that research, discusses its implications and offers insights into what advisors may need to make more informed recommendations to clients about closed-end funds (CEFs).
Download Report
The information presented does not constitute legal, accounting, tax or financial advice. We try to provide quality information, but we make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in this webinar. Strategies mentioned in this webinar may not be suitable for you. As legal and other professional advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of a competent legal counsel or professional accountant, certified financial planner, tax preparer or other licensed professional.
Key Takeaway
1
Advisors who recommend closed-end funds for their clients — 27% of survey respondents — are a select and loyal group. Of that group, 46% have been using or recommending CEFs for 10 years or longer, and 80% say their primary time horizon for CEF investments is long-term since the purchases are part of a buy-and-hold strategy. In their decision to use CEFs advisors cited the following as being either critical or very important:
75% cited delivering total return 65% cited providing diversification and risk management 63% cited increasing investment income 60% cited providing for regular cash flows or distributions 52% cited tax efficiency
Respondents had slightly different objectives for clients in or approaching retirement and cited the following as being either critical or very important:
71% cited total return 67% cited providing regular cash flows 60% cited diversification and risk management 46% cited tax efficiency 34% cited increasing investment income
When asked about their satisfaction with the performance of CEFs across several criteria, respondents were very or completely satisfied:
60% with the funds’ ability to provide regular cash flow/distributions 57% with the ability to increase investment income 53% with the ability to deliver diversification/risk management 44% with total return 41% with tax efficiency
Important Objectives for Including CEFs in Client Portfolios
Important Objectives for Including CEFs in Portfolios of Those Clients Approaching Retirement
Satisfaction With CEF Performance on Select Objectives
2
When survey participants were asked to rank the major characteristics they associate with CEFs in order of preference, combining first-ranked and second-ranked preferences put income stability on top, followed closely by attractive yield and use of leverage to enhance income and total return potential.
The potential for CEFs to provide attractive yields and income derives in part from the product’s structure, which permits the holding of illiquid securities that often enjoy an illiquidity “premium” as well as allows CEF managers to employ leverage. Of those surveyed, 64% agreed that the use of leverage in CEFs increases income and total return, and 49% agreed that leverage is an attractive, unique feature of CEFs.
CEF Characteristics Ranked
The Use of Leverage in CEFs
3
“It’s a fairly reasonable way to get new guests in your restaurant, partly because third-party delivery is bringing them there.”
Advisors recommending CEFs use a wide variety of asset classes that might otherwise be difficult to access or to assemble in a diversified and professionally managed way. The most popular asset classes:
Among Next-Gen Advisors, 39% believe technology is a differentiating factor for their firm, versus just 25% of Established Advisors.
50% of respondents used multi-asset classes 40% used high-yield credit 42% used municipals
CEF Asset Classes Currently Used
In terms of their practice, advisors using CEFs agree that the products enhance their asset allocation efforts, lend sophistication to their practice, and differentiate their practice from the competition because many other advisors don’t understand the product.
Impacts of CEFs in Respondent Practices
4
Despite compelling reasons to consider closed-end funds and high levels of satisfaction among advisors who use the investments, many advisors do not include CEFs in their clients’ portfolios. The key reason is unfamiliarity with the product. More than a third of those surveyed — 35% — say they don’t feel that they know enough about CEFs to recommend the products — while 41% say they would consider using CEFs if they had a better understanding of and/or more confidence in the CEF structure. In addition, 39% of respondents said that they would consider using CEFs if the request came from a client, implying that if a client took the time and effort to research a closed-end fund, an advisor would carry out that client’s instructions. Only 9% appear opposed to using or recommending CEFs. Collectively, those responses imply that advisors are receptive to learning more about the products.
Deterrents to Recommending or Using CEFs
Potential Motivators to Consider Using or Recommending CEFs
Methodology, data collection and analysis by Wealth Management IQ. Data collected April 24, through May 30, 2023. Methodology conforms to accepted marketing research methods, practices and procedures.
OVERVIEW
METHODOLOGY
RESPONSE MOTIVATION
Beginning on April 24, 2023, Wealth Management IQ emailed invitations to participate in an online survey to active users. By May 30, 2023, Wealth Management IQ had received 763 completed responses.
To encourage prompt response and increase the response rate overall, email invitations and survey invitations were branded with the WealthManagement.com name and logo to capitalize on user affinity for this valued brand. The first 200 respondents were afforded the opportunity to receive a $10 Starbucks card.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors. The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such. Percentages displayed in charts are rounded and may not equal 100%. Important information on risk Investing in closed-end funds involves risk; principal loss is possible. There is no guarantee the Fund’s investment objectives will be achieved. Closed-end fund shares may frequently trade at a discount or premium to their net asset value. Leverage increases return volatility and magnifies the Fund's potential return and its risks; there is no guarantee a fund's leverage strategy will be successful. Closed-end fund historical distribution sources have included net investment income, realized gains and return of capital. Nuveen Securities, LLC, member FINRA and SIPIC. E-3042003P-E0823W
Methodology conforms to accepted marketing research methods, practices and procedures.
By May 30, 2023, Wealth Management IQ had received 763 completed responses.
WealthManagement.com name and logo to capitalize on user affinity for this valued brand. The first 200 respondents were afforded the opportunity to receive a $10 Starbucks card.
Report
Seizing New Opportunities in Closed-End Funds
WEBINAR
Register Now
Full Report
Previous
