Closed-end Funds, ETFs and Liquidity in a Choppy Market

The selloff in financial assets has affected all corners of the investmentuniverse, especially those using excessive leverage.  In the bond world, the average closed-end bond fund is down 10.7% in the last four weeks through Thursday.  These funds are trading at an average discount to NAV of 6.2%, versus an average premium of 2.1% at the end of January of this year.  Leverage and the reach for yield are catching up with these investments.  Another popular investment recently, MUB, the largest municipal bond ETF is down 6.23% since Friday 6/14, and the market maker for the shares had to halt cash (short settlement) redemptions due to overwhelming demand.  It is important to note that SNWAM clients are still able to generate ample liquidity and that, whether you are in our core Short or Intermediate strategy, there are still large portions of the portfolio comprised of five-year and shorter maturities that are extremely liquid with nominal price action.  Additionally, coupon cash flows and maturities will allow us to reinvest at these new higher rates and organically take advantage of higher yields.  We have never thoughtlessly taken on interest rate or credit risk, and while almost every part of the bond market is down in price over the last two months, our prudent management of risks defends against some of the more egregious price declines currently being witnessed.  This allows us to continue to provide liquidity and stand ready to take advantage of opportunities as this correction begins to overshoot and prices become attractive.