Alternative investment firm Saba Capital Management has launched CEFS, an actively managed ETF that seeks to generate high income by investing in closed-end funds trading at a discount to net asset value (NAV) and hedging the ETF's risk to rising interest rates.
This is Saba's first ETF.
Closed-end funds are listed investment vehicles that trade at a premium or discount to NAV as a result of market technicals and sentiment.
Saba specialises in fixed income and equity closed-end funds trading at a discount to NAV, given they typically offer higher yield and return potential than the underlying securities. A small portion of that excess return is used to finance the portfolio's interest rate hedge.
"Many closed-end funds are trading at an attractive discount to their net asset value," says Boaz Weinstein, founder and chief investment officer at Saba. "In an environment where investors are searching for yield, we believe closed-end funds offer high income and a margin of safety due to the discount."
The ETF offers access to Saba Capital's portfolio managers who have years of experience trading and hedging closed-end funds. Saba Capital's investment process includes proprietary models that dynamically rank closed-end funds across a variety of factors, including yield, discount to NAV and quality of underlying securities. In addition, CEFS seeks to outperform index-based closed-end fund products by actively trading the portfolio in an attempt to capture the widening and narrowing of discounts to net asset value.