Daily Note | May 7, 2024 | Karpus Can Claim Two Victories
Stocks are up for the fourth day in a row as the market continues to be bought on the dips. The catalyst is a shifting narrative towards more rate cuts than expected. We had said this would happen at some point and it appears we are here.
Here is the summary from the March 1st Newsletter:
Summary: Rate cuts are being pushed back and the running narrative is pushing towards higher-for-longer again. Watch for that to shift- AGAIN- in the next couple of months as disinflation resumes and more clarity on the first rate cut comes into focus.
From BNP Paribas:
Fig. 1: Economic surprise indices turning negative as a Too Hot narrative gives way to something cooler:
And there's that narrative turn.
We also had an announcement from Hamas on Monday that it accepted an Egyptian-Qatari cease-fire proposal to end the war with Israel gave stocks a boost in early afternoon trading.
The Buffet indicator has been floating around and shows the markets are overvalued. But they have been overvalued for some time. The markets continue to be bought on any even modest sell off. There's just too much liquidity , still, despite the Fed attempting to tighten.
In CEFs, we are seeing some nice NAV movements higher thanks to lower rates and tightening spreads. Spreads, at this point, are near their tights and there's not much juice left to squeeze.
Karpus can claim two victories in short order. The first is a formal standstill agreement with Blackrock with Blackrock Municipal Income (MUI), one of Blackrock's largest muni CEFs.
They announced a tender offer upon shareholder approval of the conversion of the fund to an unlisted closed-end interval fund structure.
The details are as follows: 50% tender at a -2% discount with a conversion sometime in the second half of this year.
The Tender Offer and the Conversion are being proposed pursuant to an agreement (the “Agreement”) among the Fund, BlackRock and Karpus Management, Inc. (“Karpus”). During the effective period of the Agreement, Karpus has agreed to (1) be bound by the terms of the Agreement, including certain customary standstill covenants, (2) withdraw the shareholder proposals and director nominees previously submitted for consideration at the Fund’s 2024 annual meeting of shareholders, and (3) vote Fund shares on proposals submitted to shareholders in accordance with the recommendation of the Board.
My Take: While this appears like a good option to invest in on the surface, I detailed to a member yesterday why it's not all that great until we know all the details. The question is whether or not investors will be able to sell their residual shares that are not tendered before the conversion to an interval fund.
Interval funds are a MASSIVE P.I.A. to sell, especially for retail investors. They typically only redeem shares quarterly and up to a certain amount. If you cannot sell before the conversion, you'll be stuck with these shares for a long time.
This is why there was still so much juice left in the discount as of this morning. I would hold off on buying these shares until we get all the details.
The second victory for Karpus was Eaton Vance Muni Bond (EIM) which announced a smaller 20% tender at a -2% discount. This was perhaps more of a defensive move by the fund to stave off Karpus. No standstill agreement was made.
The Firm Tender Offer is expected to begin on or about June 7, 2024 and expire at 5:00 P.M. Eastern Time on or about July 9, 2024, unless extended.
They also announced two additional tender offers four months following the conclusion of the first IF the discount averages -7.5% or wider and conduct it within 20 days of the trigger for up to 5% of shares.
EIM is one of my larger muni CEF holdings (number 5 I believe) so this was welcome news. But I don't think this will prevent Karpus from continuing to go after the fund.
First Trust finished the conversion of the four MLP closed end funds (FEI)(FPL)(FEN), into the new ETF, First Trust Energy Infrastructure (FIF).
FEN: 0.880285
FEI: 0.541658
FPL: 0.428077
Have a great day!
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