Alternative Investments

Powell Investment Advisors is the investment manager to the CEF Total Return Opportunity Fund LP.

The investment objective of the CEF Total Return Opportunity Fund LP is total return, consisting of high current income and potential capital appreciation.

The Partnership seeks to achieve its objective by investing in shares of Closed-End Funds.  The Fund is designed to exploit the inefficiencies in the secondary market for Closed-End Funds.  The combination of our quantitative approach and research-driven qualitative process for selecting Closed-End Funds is utilized to create a portfolio of what is generally expected to consist of approximately 25-35 Closed-End Funds allocated across multiple sectors, strategies and managers. The objective is to create a total return profile comprised of three elements: current income, capital appreciation, and discount narrowing.

The quantitative approach seeks to identify Closed-End Funds that meet one or more of the following characteristics: (i) market capitalization generally greater than $350 million; (ii) average daily trading volumes generally greater than $2,000,000; (iii) relatively high current income; (iv) share prices at a discount to net asset value, with a focus on deviation from long-term average discount to net asset value and; (v) well-regarded asset managers with strong track records managing the asset class(es) that a portfolio fund invests in.

The research-driven qualitative process relates to the concept of discount narrowing, a process that seeks to exploit the structural characteristics of Closed-End Funds and allows their market price to deviate from net asset value. By selecting funds that are trading at substantial discounts to their long-term average discount, and/or those that have a catalyst to drive improvement in market price relative to net asset value, the Investment Manager believes it can enhance the total return profile of the portfolio.

Why are we able to buy Closed-End Funds at a discount to the value of the assets in their portfolio?

Closed-End Funds trade irrationally during periods of volatility and can be bought at either a discount or premium to net asset value.  Discounts and premiums exist for the following reasons:

• Largely Retail Ownership (85% of Closed-End Fund Market) – Discount/premium reflects retail investor broad sentiment (fear vs. greed), which creates arbitrage opportunities for sophisticated investors.
• Lack of Institutional Following and Research – Limited interest from institutional investors allows pricing inefficiencies to exist.
• We use specialized software to quantitatively identify these arbitrage opportunities.

We pride ourselves on being fully transparent and welcome the opportunity to discuss our strategy and performance in more detail. If you would like more information about the CEF Total Return Opportunity Fund LP, please send us an email.