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Closed-end funds are trading at attractive entry points

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The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Jonathan Isaac, Director of Product Management and Christopher Remington, Institutional Portfolio Manager, Eaton Vance Management

      Boston - The essence of value investing is looking for bargains: assets "marked down" by the market for reasons that appear to be unrelated to the true worth of the investment. In the world of closed-end funds, a key metric for bargain hunting is the extent to which a fund may be trading at a discount from the net asset value (NAV) of its underlying assets.

      By that measure, closed-end funds that invest in floating-rate loans and limited duration bonds may be of interest to investors. It's not unusual for these funds (or closed-end funds in general) to trade at a discount to NAV. Discounts increased in volatile markets in the latter half of 2018, driven primarily by investor concerns over the path of short- and long-term interest rates, broad geopolitical uncertainty and significant tax-loss selling.

      As these concerns have moderated somewhat this year, the discounts on closed-end funds in general have shrunk to match their three-year average. Investors who bought those funds when the discounts were at their widest had the potential for capital gains as the price of the fund moved closer to NAV.

      A new Eaton Vance Insight, "Closed-end fund discounts may provide opportunistic entry points," outlines how investors may benefit under several market scenarios.

      Bottom line: It's impossible to predict if and when discounts on closed-end funds that invest in floating-rate loans and limited duration bonds will shrink back to their longer-term averages. But greater-than-average discounts represent a potential "leg up" that might not be around for long, for investors considering these asset classes.