Nuveen Sees Rising Demand for Closed-End Funds

June 29, 2017 at 11:17 AM
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Nuveen has been in the closed-end fund industry for 30 years. In those three decades, Nuveen has grown to become the market leader in closed-end funds in terms of assets with $60 billion in closed-end funds.

The firm celebrated the 30th anniversary of the Nuveen Municipal Value Fund (NUV) on Tuesday with a ring of the Opening Bell at the New York Stock Exchange.

NUV was introduced in June 1987, and is Nuveen's oldest closed-end fund. Since its IPO, the NUV fund has delivered to investors more than $3 billion of monthly tax-free distributions.

The demand for tax-free income, especially as the baby boomer generation is now retiring en masse, has never been greater, according to Anne Kritzmire, managing director of Nuveen's closed-end fund investor relations program. Investors are looking for funds that can generate a reliable dividend over time — an important element of any well-balanced income portfolio.

"With 10,000 baby boomers retiring every day trying to seek income, a lot of them may not have saved as much as they would have liked so they may be reaching for higher yielding ways to turn their savings into cash flow," Kritzmire said during a visit to ThinkAdvisor's New York office.

Closed-end funds are one way to get income and cash flow for retirees. Closed-end funds are really designed for income, Kritzmire explained, adding that the structure can afford and be managed to provide cash flow from a variety of asset classes.

"You don't want to be beholden just to bonds [for income], that may be very interest rate sensitive," Kritzmire said. "Therefore you can look at asset classes that offer you higher yield or more opportunities, as well as this [closed-end fund] structure that is usually managed to convert whatever return you have into cash flow. And the way most closed end funds do that is through intentional management."

Kritzmire herself invests in closed-end funds, although not exclusively.

"You'd never put all of your money there … but it can make a meaningful difference in helping to add income and diversify," she said.

In Kritzmire's role, she is constantly interacting with financial advisors, helping them to understand and meet the income needs of clients approaching retirement. Or as she describes it: "Part of my job is to be an apostle and educator" of closed-end funds.

According to Kritzmire, what's holding more advisors from using closed-end funds is a "lack of understanding."

Nuveen has done research on the advisors who do or do not use closed-end funds.

Of the advisors that don't, Kritzmire said, "they don't tell us it's because they think they're awful. They tell us it's because they don't know enough. No responsible advisor is going to sell something they can't explain to a client. And there's not a ton of support."

So Nuveen has tried to offer support for closed-end fund vehicles over the years. The firm created a continuing education program for advisors. Nuveen also sponsors the website CEF Connect.

"We sponsor an industry website that probably an association should, but nobody did so we did," Kritzmire explained.

Nuveen buys the data from Morningstar for the entire market, and Kritzmire is quick to emphasize that Nuveen doesn't "ever touch the data."

"Advisors and investors use it as a place to kind of go shopping," she said of CEF Connect. "It has a very strong filtering and screening tool."

As advisors are helping clients look for income, many have turned to closed-end funds.

Since 2013, closed-end fund usage increased as financial advisors became significantly more likely to use such funds in clients' portfolios, according to Nuveen's 2016 Closed-End Fund Usage Study. Two-thirds (66%) of advisors now use closed-end funds compared with just over half (51%) in 2013, the last time Nuveen commissioned similar research.

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