Fitch: US Closed-End Funds Weather Recent Market Volatility

NEW YORK--(BUSINESS WIRE)-- Fitch-rated closed end funds (CEFs) have maintained high levels of asset coverage and passed their respective rating levels throughout the recent jump in market volatility, says Fitch Ratings. The fear of an economic slowdown in China, the expectation of a rate hike from the Federal Reserve and the falling price of oil are affecting equity and bond markets and the net asset values (NAVs) of CEFs.

The market's volatility has decreased asset coverage levels associated with the leverage issued by CEFs. Between Aug. 17, 2015 and Aug. 26, 2015, CEFs had an average NAV decline of 2.7%, while asset coverage decreased by 1.9%. The declines were partly a result of the substantial declines in major market indices, including a 7.7% decline in the S&P 500 over the same eight-day period. Despite their NAV declines, Fitch-rated CEFs continue to maintain asset coverage of at least 200% for total leverage (debt plus preferred shares) and 300% of debt, as well as consistent with assigned ratings.

In particular, the falling price of oil has had a negative effect on NAVs of MLP funds. Between Aug. 17, 2015 and Aug. 26, 2015, the average NAV of an MLP fund decreased by 11.1%. During this time period, average asset coverage ratios fell by 7.7%, while all rated MLP funds remained well above Fitch's thresholds to retain their current rating level. The maintenance of coverage by MLPs was driven by a substantial asset-coverage cushion built in by managers ahead of the recent volatility, and by modest deleveraging by some funds.

In a sign that asset volatility has affected investors' views of fund performance, between Aug. 17, 2015 and Aug. 26, 2015, the average CEF discount widened 0.7% as share prices tumbled faster than NAVs. This brought the average CEF discount to 9.9%.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150831006168/en/

Fitch Ratings
Ian Rasmussen
Senior Director
Funds and Asset Managers
+1 212-908-0232
or
Gregory Fayvilevich
Director
+1 212-908-9151
or
Matthew Noll, CFA
Senior Director
Financial Institutions Fitch Wire
+1 212-908-0652
or
Media Relations
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

You May Also Be Interested In

• Compliance Kitchen Maps CA Restaurants to Local Jurisdiction Rules
• Web3MediaBreaks – Datavault AI Inc. (NASDAQ: DVLT) Appoints Frank Deo Chief Technology Officer of Acoustic Sciences Division
• Latham International Launches £50,000 Signature Membership to Redefine Luxury Matchmaking for High-Net-Worth Clients