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Closed-End Bond Funds in the Spotlight: Why Are Big Names Piling In?


From the Buzz & Banter: Hedge fund Saba Capital has increased its stake in these investments, and others may follow.

Today, Bloomberg's always-on-point credit markets reporter Lisa Abramowicz noted that this year, hedge funds Saba Capital (run by renowned manager Boaz Weinstein) and Pine River Capital Management are showing increases in closed-end bond funds that have significant discounts to NAV.

Saba now has $847.3 million in the closed-end funds vs $3.9 billion in total fund assets. However, note that Saba could be leveraged and/or the position could be hedged, so its exposure can't be calculated with certainty.

I have been in muni, mortgage, and credit funds since August of last year, but news starting to trickle out that big-name funds are piling in makes me sit up in my seat.

Moreover, Saba and Pine River are not alone in owning these funds. The likes of Bill Gross and Jeff Gundlach have been heavily in this space since Q3 of last year.

Perhaps others will join the trade?

If we see another pop in these funds over the coming weeks, I will probably exit stage left and reevaluate. I'm still not seeing any irrational exuberance in this space, so I don't think it's a reason to sell based on anything fundamental or structural. These funds, as a whole, are generally pricing their assets on a 10-year yield north of 3%.

Twitter: @MichaelSedacca

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Position in MVF and Various Mortgage Funds

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