CIO Patrick Galley provides an update on the RiverNorth/DoubleLine Strategic Opportunity Fund (OPP).
[BEGIN VIDEO TRANSCRIPT]
Allen: So, Patrick in the last couple of months, capital markets have had pretty good performance, both on the equity and fixed income side in December, and especially in January. Can you talk a little bit about performance on the RiverNorth/DoubleLine Strategic Opportunity Fund?
Patrick: The return of the fund is approximately 3.2 percent since the inception which was September 28, 2016. So, it has had a good run since inception. To put that in perspective, the Barclays Aggregate was down approximately two percent. So, we've outpaced the Barclays Aggregate by over five percent on a net asset value basis. A lot of that has been driven through closed-end fund performance. You've had closed-end funds appreciate based off of the net asset value and the leverage inherent in the closed-end fund structure. In addition, discounts have narrowed. Part of that was the January effect that we started to see in December as discounts started to narrow in December and then continued on through January.
Allen: So, if you look at the end of January obviously forms pretty good which you highlighted. If you think about the portfolio, is the opportunity set both for RiverNorth and DoubleLine still pretty attractive?
Patrick: Well, our philosophy at RiverNorth is there’s always opportunity in closed-end funds. You've got various asset classes and sub-asset classes that, usually, there is some kind of fear and some kind of greed going on. So, there is always some kind of opportunity. The beauty of the structure is though we can gauge that opportunity by dialing up and dialing down the exposure to closed-end funds. If you recall the maximum closed-end fund exposure is 35 percent in the fund. The minimum is ten percent. Currently were at a 30 percent allocation to closed-end funds. In addition, we have implemented leverage in the capital structure of the RiverNorth/DoubleLine Strategic Opportunity Fund.
Allen: So, by weighting the RiverNorth sleeve that 30 percent, can we imply that, since the max is 35 percent, that RiverNorth still thinks the closed-end fund opportunity is still attractive?
Patrick: Yes. Especially in the fixed income landscape, when you have fear over interest rates you also have fear over capital markets, and spread rising, and risk assets, we're continuing to find opportunity, and especially in fixed income closed-end funds.
Allen: Patrick can you talk a little bit about the distribution. When we last did a video on the fund, I think it was a launch video in the latter part of last year. I don’t believe that we actually paid distributions. So, can you talk about what investors can kind of expect from a distribution stand point? Both on a frequency and possibly an amount standpoint?
Patrick: Yeah. Since inception of the fund, again September 2016, obviously, we were ramping up the portfolio both RiverNorth and DoubleLine's philosophy is let’s take our time... let’s not sacrifice a principle for the sake of yield. So, we took our time investing the portfolio. That was the right move as we saw more opportunity at the end of the year versus at the launch of the fund. Since then we’ve obviously implemented leverage. So now we’re in an almost fully invested state.
Allen: Patrick, on a related topic. You know when the fund was launched back in September there surely were not a lot of perpetual closed-end funds being brought to the market. We see some term trusts and some other things, but it’s really not a lot of perpetuals. As we fast forward, we have a new administration, and possibly different rules and regulations with this administration. Is this one of the last perpetuals we will see for some time? Or possibly, is the fixed income close-end fund market back open for primary market business?
Patrick: So far it is term trusts looking forward. As you alluded to, OPP was the last perpetual fund, with the caveat that we do have a five-year open ending provision that the fund can be converted to an open-end fund in year five, but effectively it is the last closed-end fund. To my knowledge, there are not any perpetual funds that are coming to market any time soon. So, I think the term trusts are kind of here to stay for the near future... not necessarily a DOL factor, but a way to manage and control the discounts in closed-end funds.
Allen: Patrick, last question. Can you talk a little bit about the discount premium performance of OPP as it relates to other taxable fixed income closed-end funds and the closed-end fund market as a whole?
Patrick: The current discount of OPP is approximately five percent. That’s in line with other taxable fixed income closed-end funds. So, we’re not higher or lower necessarily. That said I think obviously, what's unique here is that you're getting access to Jeffrey Gundlach and his hedge fund strategies, opportunistic income strategy makes up approximately 70 percent of this strategy. Therefore, you’re getting daily liquidity, no performance fees, etcetera. So, you're getting access to that unique strategy. In addition, you’ve got RiverNorth opportunistically investing in fixed income closed-end funds. Combine those two and those are tactically managed by the portfolio managers together. I think it’s a unique strategy.
Allen: Patrick, thanks for your comments and we appreciate the fund update.
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Video recorded 2.21.2017.
Produced by RiverNorth Capital Management, LLC ("RiverNorth" "we" or "us").
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