The carnage in the taxable bond closed-end funds is giving advisers another opportunity to invest in a tightly controlled mutual fund co-managed by bond guru Jeffrey Gundlach.
The $1.1 billion RiverNorth DoubleLine Strategic Income Fund (RNDLX), which is comprised of a closed-end fund sleeve managed by RiverNorth and a bond sleeve managed by Mr. Gundlach, has re-opened to new investors thanks to opportunities popping up in the closed-end space.
The fund launched toward the end of 2010 and closed to new investors less than two years later as the frothing demand for fixed-income created few opportunities for the closed-end fund side of the fund to invest.
Since its launch, the fund has a total return of more than 20%, almost double that of the average multi-sector bond fund, according to Morningstar Inc.
RiverNorth is known for keeping a tight lid on its funds' asset levels though so don't be surprised if it closes again soon.
“We're focused on capacity relative to the opportunity set,” said Patrick Galley, chief investment officer at RiverNorth. “It's something we take serious.”
It's taken so seriously, in fact, that the company's first mutual fund, The RiverNorth Core Opportunity Fund (RNCOX), is still closed to new investors even though it has just $633 million in assets.
Closed-end bond funds have been hit particularly hard by the rise in interest rates though and that's giving Mr. Galley the confidence to re-open the RiverNorth DoubleLine fund.
Closed-end funds have a fixed number of shares so, depending on the demand, or lack thereof, the shares will trade at a premium or discount to the net-asset value of the fund's underlying bonds.
The average closed-end bond fund was trading at a premium of more than 2% before the recent spike in interest rates that sent the 10-year Treasury soaring more than 100 basis points. Those same closed-end bond funds are trading at an average discount of 7% today, according to Closed-End Fund Advisors Inc.
Now that closed-end bond funds have been walloped by the rise in interest rates, Mr. Galley is seeing enough opportunities to open the fund back up.
“A lot of closed-end funds are trading at attractive discounts right now,” he said. “We haven't seen this kind of opportunity since we launched the fund.”
The fund's allocation to the closed-end fund portion is at more than 30% today, up from around 17% a year ago.
Even though he's keeping a close eye on his fund's asset levels, Mr. Galley doesn't expect the opportunity created by the rise in interest rates to be short-lived and neither does his co-manager Mr. Gundlach.
Mr. Gundlach, founder and ceo of DoubleLine Capital LP, expects
interest rates to rise higher than 3%, up from 2.75% today.
“We don't see signals that the interest rate increase is over. Fear and loathing is the sentiment now,” Mr. Gundlach said during a TV interview on Thursday. “The market's gone from saying, 'I don't care about volatility, I just want income,' to 'I don't care about income, I don't want volatility.'”
