RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. Update
CIO Patrick Galley provides an update on the RiverNorth/DoubleLine Strategic Opportunity Fund (OPP).
- Downloadable video file - Use this option if you have trouble viewing the embedded YouTube video above or if you would like to save the video to your desktop.
[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.
[END VIDEO TRANSCRIPT]
Video recorded 2.21.2017.
Produced by RiverNorth Capital Management, LLC ("RiverNorth" "we" or "us").
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice. References to specific securities, asset classes, and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Opinions referenced are as of the day recorded and are subject to change due to changes in the market, economic conditions, or changes in the legal and/or regulatory environment and may not necessarily come to pass.
Past performance is not a guarantee of future results. Diversification does not ensure a profit or guarantee against loss.
Investing involves risk. Principal loss is possible.
An investment in the Fund is not appropriate for all investors and is not intended to be a complete investment program. The Fund is designed as a long-term investment and not as a trading vehicle.
Investors should consider the Fund's investment objective, risks, charges and expenses carefully before investing. The prospectus should be read carefully before investing. For more information, please read the prospectus, call your financial professional or call 800.617.0004.
The fund is a closed-end fund and closed-end funds do not continuously issue shares for sale as open-end mutual funds do. Since the initial public offering, the Fund now trades in the secondary market. Investors wishing to buy or sell shares need to place orders through an intermediary or broker. The share price of a closed-end fund is based on the market's value.
The price at which a closed-end fund trades often varies from its NAV. Some funds have market prices below their net asset values - referred to as a discount. Conversely, some funds have market prices above their net asset values - referred to as a premium.
Portfolio asset allocations are estimates made by the adviser and are subject to change. Based on market value (including assets attributable to leverage).
Leverage is a speculative technique that exposes a closed-end fund to greater risk and increased costs than if it were not used. The use of leverage may cause greater volatility in the level of a closed-end fund’s NAV, market price and distributions on its common shares. Leverage will also result in higher fees to the closed-end fund manager because the amount of assets under management will be included in the Fund’s managed assets. There can be no assurance that a closed-end fund will use leverage or that its leveraging strategy will be successful during any period in which it is employed.
A portion of the Fund's distributions may be treated as paid from sources other than net income, including but not limited to short-term capital gain, long-term capital gain and return of capital. The final determination of the source of all distributions, including the percentage of qualified dividend income, is made after year-end.
The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of investment-grade fixed-rate debt issues with maturities of at least one year. The index cannot be invested in directly and does not reflect fees and expenses.
A credit spread is the difference in yield between two bonds of similar maturity but different credit quality. Widening credit spreads indicate growing concern about the ability of corporate (and other private) borrowers to service their debt. Narrowing credit spreads indicate improving private creditworthiness.
Yield is the income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.
Perpetual closed-end funds trade on an exchange with no set termination or maturity date.
A term trust is a closed-end fund that has a fixed termination date. At the termination date, all shares in the term trust are redeemed, and shareholders are entitled to the profits (or must suffer the losses) that the portfolio has achieved over its life.
Contingent Conversion: During the calendar year 2021, the Fund will call a shareholder meeting for the purpose of voting to determine whether the Fund should convert to an open-end management investment company. If approved by shareholders, the Fund will seek to convert to an open-end management investment company within 12 months of such approval.
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
DoubleLine® is a registered trademark of DoubleLine Capital LP.