CLO Equity CEFs: A Bull Market Emerges

The article discusses the CEF (Closed-End Fund) market, focusing on the recent bull market in CLO (Collateralized Loan Obligation) equity CEFs. The article highlights individual fund news and events, as well as the broader market, and provides a summary of market activity from a bottom-up and top-down perspective.

Title: Bull Market in CLO Equity CEFs: A Review of Recent Market Activity

The Closed-End Fund (CEF) market has seen a strong resurgence, particularly in the CLO (Collateralized Loan Obligation) equity CEF sector, as the space continues to climb out of its tariff-induced slump. According to the latest CEF Market Weekly Review [1], equity-linked sectors have led the rally, with sector NAVs and valuations surging. CEFs have trimmed their losses to around 2% so far in April, which is about double that of March.

One notable shift in the market is CUBA's policy change to CLO Equity. CUBA, one of the smallest CEFs with around $50 million in total assets, has announced a new strategy focusing on junior CLO Debt. This shift is likely driven by the current administration's stance on improving relations with Cuba and the Caribbean Basin, which suggests that moving on from the region might be the right trade. Herzfeld Advisors, the manager of CUBA, will implement this new strategy with a fee structure of 1.25% with a 10% incentive on a hurdle of 9%, making it one of the lowest fees in the CLO Equity CEF sector.

The BNY Mellon Municipal Bond Infrastructure Fund (DMB) also made headlines by hiking its distribution by 27% to a rate of 4.6%. This significant increase comes after the fund was underdistributing, with a previous distribution rate of 3.6%. The fund's new distribution appears to align with its net investment income from the last annual report, although this might understate the actual net investment income due to the drop in short-term rates over the past six months.

CLO Equity CEF ECC has also upsized its private convertible preferreds Series AA and AB, with a yield differential between them and the public preferreds of the fund growing to nearly 2%. This move is advantageous for the company, as it helps keep interest expenses lower, making it more competitive within the sector.

The First Trust Specialty Finance and Financial Opportunities Fund (FGB) is set to reorganize itself into an ETF, the FT Confluence BDC & Specialty Finance Income ETF (FBDC). This reorganization, following a previous failed attempt, aims to address the fund's poor performance, which has been around half that of the median BDC over the last decade. The fund's high fee structure of 0.95% is a concern, and investors might consider allocating to individual BDCs instead.

In broader market news, the State Bank of India (SBI) is likely to consider raising funds through equity for FY26. The bank's board meeting on May 3, 2025, will review and approve the financial results for the quarter and full year ended March 31, 2025. The agenda also includes a proposal to raise equity capital during FY26 through various instruments such as a Follow-on Public Offer (FPO), Rights Issue, or Qualified Institutional Placement (QIP). The final decision will depend on market conditions and approvals from the Government of India and the Reserve Bank of India.

References
[1] https://seekingalpha.com/article/4781516-cef-weekly-review-bull-market-in-clo-equity-cefs
[2] https://www.fortuneindia.com/business-news/sbi-board-to-weigh-equity-fundraising-plans-for-fy26-at-may-3-meeting/122553