navision reversing a zero dollar credit memo

Regulatory leverage changes a fund’s capital structure by issuing preferred shares and/or debt. Each type of leverage has characteristics that can make it well suited to specific products and market environments. Nuveen uses a variety of leverage strategies in its CEFs, and may sometimes use more than one type for a fund. While leverage may help increase distributions and return potential for the fund, it also increases the volatility of the fund’s net asset value (NAV), and potentially increases volatility of its distributions and market price as well. A fund’s leverage strategy is successful when, after considering the associated costs, common shareholders obtain higher distributions or total return than they would have without leverage.

The primary costs associated with leverage are ongoing dividend and interest expenses, but there may also be expenses for issuing or administering leverage. Holding certain investments within the portfolio - portfolio leverage - is another leverage strategy.

The fund may also leverage itself by issuing senior securities (preferred shares of the fund) that pay variable or fixed dividends at short-term rates. To create leverage, a CEF raises capital by borrowing at short-term rates, then uses the proceeds to make additional investments for its portfolio. Potential positive results leverage is intended to provide. What’s more, a long-term view is important to realizing the Incremental income that more than compensated for the associated cost andĪdded volatility. It’s worth noting that historically, leverage has often delivered The hypothetical example below shows how leverage can magnify a closed-endįund’s returns. Conversely, if the underlying portfolio return is negative, a leveraged fund will have greater losses than an unleveraged version.If the underlying portfolio return is positive, a leveraged fund typically will have higher returns than an unleveraged fund with the same portfolio.It’s important to note that leverage magnifies portfolio performance, whether positive or negative: For this reason, leverage is generally more prevalent in CEFs than in other retail investment products.ĬEFs use leverage in an effort to enhance a fund’s income and return.

Regulations limit the ratio of a fund’s leverage to its total assets, and the relatively steady asset base of a CEF makes staying within that ratio easier and more consistent. Unlike a typical mutual fund, CEF shares are neither created nor redeemed in response to investor activity, which means the fund is better able to maintain a steady asset base. Instead, following its IPO, the fund’s shares trade on an exchange, such as the NYSE or the NASDAQ. Once the initial capital is raised, the fund is “closed” and typically no longer directly offers its shares for sale. Why are closed-end funds well-suited for leverage?Ī closed-end fund (CEF) raises capital by selling a fixed number of shares at one time through an initial public offering (IPO). On the following pages we provide an overview of how leverage works, strategies used to create leverage and their inherent costs, as well as the potential benefits and risks that leverage entails. Most closed-end funds use leverage in an effort to enhance the fund’s return, income or both.

Navision reversing a zero dollar credit memo