Fund Overview: RiverNorth Opportunities Fund, Inc.

CIO Patrick Galley provides an overview of RiverNorth Opportunities Fund, Inc. (NYSE:RIV) and explains its quarterly special distribution.


ALLEN: I'm joined today by RiverNorth Chief Investment Officer, PATRICK Galley, to talk about the RiverNorth Opportunities Fund. PATRICK, first of all thanks for joining me today.


ALLEN: Secondly, our viewers know us well for the mutual funds that RiverNorth's an adviser to and the partnerships where RiverNorth is the general partner. Now we have a closed-in fund where RiverNorth is the subadviser. Could you tell us a little bit about the RiverNorth Opportunities Fund and how it came to be?

PATRICK: Sure. The RiverNorth Opportunities Fund was launched in December 2015. Like you said, it is a closed-end fund, so it's RiverNorth's first closed-end fund and we are the subadviser. ALPS is technically, the adviser of the fund, but we're managing the portfolio just like we are the open-end funds. It's a little different strategy than the open-end funds. Obviously, we don't have to contend with inflows and outflows, so that's a big positive. It's a captive pool of assets so we're able to manage the strategy without worrying about outflows at any given day. It's similar to our open-end fund, the RiverNorth Core Opportunity Fund in that it opportunistically invests in closed-end funds. It'll also implement and utilize ETFs in its portfolio construction as well.

ALLEN: PATRICK, I believe there are special features to the Fund. Can you walk us through some of the features that people may not be familiar with?

PATRICK: Probably the one biggest feature is that we can utilize leverage opportunistically, given that it's a closed-end fund, so unlike open-end funds, we don't utilize any leverage. As we know, the closed-end funds also implement leverage that we're investing in. There is a portfolio restriction first of all that we can't implement leverage over 15% at the fund level. Then there's another further restriction that we can't have leverage aggregating to 33% or above, and that includes our fund leverage plus the underlying fund leverage that we're investing in.

ALLEN: So total leverage can't exceed 33%, and 15% of that is the max for RiverNorth leverage at the fund level.

PATRICK: Correct.

ALLEN: Other features?

PATRICK: Another feature is that we have the ability to short. In addition to going long in the portfolio, we can implement shorts to hedge out some of the beta. I think that's one of the attractive things that we find in closed-end funds is that our definition of alpha is purely discounts narrowing. If we're able to isolate the beta and hedge out some of that beta in the portfolio and the discounts narrow, that's pure alpha. We can also implement shorting at the fund level as well. That said, should caveat that these are both opportunistic, so given that we're in March 2016, to date we haven't implemented leverage nor shorting in the portfolio.

ALLEN: PATRICK, any other special features to the Fund?

PATRICK: Yeah, one other special feature that we have, I think unusual and setting, hopefully, a precedent for future closed-in funds is a special distribution. Within the first year, if there's any unrealized gains in the portfolio, every quarter we're going to be doing a special distribution at the tune of 50% of that unrealized gain. What that means is that for any given quarter, let's just say that the net asset value increases by a dollar, we're going to pay out a special distribution of 50 cents. In the first quarter of 2016, we did have a slight increase in the net asset value, despite the market volatility that we all witnessed, we had appreciation. We're going to be doing about a 3.5 cent distribution in April 2016.

ALLEN: Patrick, if I'm hearing you correctly, most closed-end funds, an investor is beholden to just price up or price down. Here though, owners of RiverNorth Opportunities Fund possibly get participation in the NAV increase of the portfolio, which is unusual, correct?

PATRICK: That's correct, yes. If the Fund is trading at any type of discount, then you're obviously getting that money back through those special distributions at net asset value, so you don't have to worry about the Fund trading at any type of discount. Currently, the discount on the closed-end fund, RiverNorth Opportunities Fund that is, is approximately 6.5%. Not that wide of a discount relative to the space, but those special distributions, again, get distributed back at net asset value so there's even accretion there.

ALLEN: Can you talk a little about the open-ending provision?

PATRICK: Sure. In Year 5, we have a vote, and this is an automatic vote that shareholders will vote on whether they would like the Fund to convert to an open-end fund or leave it as a closed-end fund. This is automatic. It's not a Board vote at all. This will be automatically going to shareholders in Year 5. If it's trading at a deep discount, one would think that shareholders would want to vote to convert it to an open-end fund, and thereby eliminating the discount by a conversion to the open-end fund.

ALLEN: It sounds like that's an important feature. As opposed to needing an activist or someone externally coming in to try to force the Board to narrow the discount, you're building in some automatic activism in Year 5, is that the way to look at it?

PATRICK: I wouldn't call it necessarily activism in Year 5, but it gives the shareholders the right to vote if they would rather have this as an open-end fund. We also think over that five years leading up to Year 5, the Fund will trade better in the secondary market. Naturally if there's an open-ending provision and it's trading at a deep discount, I think it'll attract certain value investors to want to potentially convert that Fund to an open-end fund.

ALLEN: Patrick, for those that know the Core Opportunity Fund on the open-end side, which you mentioned, can you talk a little bit about the similarities and the differences between something like Core Opportunity and RiverNorth Opportunities Fund?

PATRICK: Obviously the open-end fund is just that. It's an open-end fund so it has to contend with daily inflows and outflows, which we obviously, as a closed-end fund, the RiverNorth Opportunities Fund doesn't have to content with daily inflows and outflows. That's the number one biggest advantage from our standpoint as a portfolio management perspective; that we don't have to worry about the outflows. We're never going to forced sellers of closed-end funds because of a potential outflow. Typically, in the open-end fund we have more cash on the balance sheet. We also, typically, have more ETFs on the balance sheet as well, for that potential risk of any outflows that we might have to contend with in any given day. Given that it's a closed-end fund, we don't have to worry about the outflows, we can invest more opportunistically in closed-end funds when discounts are wider, not having to worry about the outflows.

ALLEN: Patrick, as we sit here at the end of March 2016, can you talk a little about the underlying portfolio and just the way it's positioned and some things that you're thinking about as you look at closed-end funds?

PATRICK: Yes, number one, the environment is ideal to be invested more heavily in closed-end funds than not. Discounts are pretty attractive on a relative basis. Over 90% of the fund is invested in closed-end funds and the balance being BDCs, business development companies that is, and then just a small percentage in cash that we have some dry powder just in case discounts do go even wider. We think we're pretty well exposed to closed-end funds, given the attractiveness of where discounts are today. As far as portfolio allocation goes, we are tilted more towards fixed income closed-end funds than equity closed-end funds, given that credit spreads have widened out over the last five, six months. In addition to credit spreads widening out, closed-end fund discounts have widened out as well. We find them more attractive today than we have in most recent years, so we have a tilt towards fixed income closed-end funds. Just over 50% of the Fund is in fixed income closed-end funds.

ALLEN: Thanks very joining us today, PATRICK.

PATRICK: Thanks, Allen.


Video recorded 4.5.2016

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.

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 1-855-830-1222.

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. Because the Fund is newly organized, its common shares have a limited history of public trading. Shares of closed-end investment companies frequently trade at a discount from their net asset value and initial offering prices. The risks associated with this characteristic of closed-end investment companies may be greater for investors expecting to sell their shares in a relatively short period after completion of the initial public offering.

Risk is inherent in all investing. Investing in any investment company security involves risk, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing in the Common Shares, you should consider the risks as well as the other information in the prospectus.

Past performance is not a guarantee of future results. Diversification does not ensure a profit or guarantee against loss.

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.

Leverage creates risks which may adversely affect return.

A short sale has the potential for unlimited losses.


Alpha is a measure of performance on a risk-adjusted basis. The excess return of a fund relative to the return of the benchmark index is a fund's alpha.

Beta reflects the sensitivity of a fund’s return to fluctuations in the market index. A beta of 0.5 reflects half of the market’s volatility as represented by the Fund’s primary benchmark, while a beta of 2.0 reflects twice the volatility.

A short sale involves the sale of a security that the fund does not own in the expectation of purchasing the same security (or a security exchangeable therefor) at a later date and at a lower price. The fund will incur a loss as a result of a short sale if the price of the security increases between the date of the short sale and the date on which the fund replaces the security sold short. The fund will realize a gain if the security declines in price between those two dates.

Dry powder refers to marketable securities that are highly liquid and considered cash-like. Dry powder may also refer to cash reserves kept on hand to cover future obligations or purchase assets, if conditions are favorable.

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.

Unrealized gains and unrealized losses are often called "paper" profits or losses, since the actual gain or loss is not determined until the position is closed.

ALPS Advisors, Inc. is the investment adviser to the Fund.