CEF Analyzer Fund Categories

CEF Analyzer uses two categorization systems for closed-end funds (CEFs), a portfolio based system and a benchmark based system. Both systems have their advantages and disadvantages.

The portfolio based system uses fund holdings and other information from the most recent annual or semi-annual report. The benchmark based system compares the distribution adjusted net-asset value (NAV) total return for each fund to the distribution adjusted NAV total returns of passive benchmarks and reports the best fit based on the statistical correlation of weekly returns over the trailing 12 month period.

This document describes the categorization methodology and the codes and names used to report the categorization.

Portfolio Categorization

The portfolio categorization code is a sequence of short codes separated by forward slash (/) symbols. The leftmost code is the most general code and each subsequent code to the right is more specific. For example, the one part code F means any kind of taxable fixed income, the two part code F/C means specifically corporate bonds and the two part code F/A means government agency bonds. Furthermore, the code F will match both funds that invest in corporate bonds and goverment agency bonds while the codes F/C and F/A will match only the more specific sub-categories. The annual or semi-annual report, hereafter report, indicates whether a fund invests primarily in equity or primarily in debt or something else. This is the starting point for the portfolio based categorization. With some exceptions, if the fund invests primarily in equity, as indicated in the report, it is assigned the broad categorization E for equity. Similarly, if the fund invests primarily in debt, it is assigned the broad categorization F for taxable fixed income or M for tax-free fixed income, based on other criteria described below. If the information is not specified in the report, the fund is assigned the broad category ?.

Equity

As noted above, when a report indicates that a fund invests primarily in equity, it is assigned the broad category E.

The next step is to try and make the categorization more specific.

The report indicates the percentage allocation to preferred stock. If the allocation to preferred stock is greater than 50%, the fund is assigned the sub-category E/P for Equity Preferred. Otherwise it is assigned the sub-category E/G for Equity General. There is one exception, if the fund name mentions certain key words, such as "real estate" or "realty", it is assigned the category E/R for Equity Real Estate.

E/GEquity (General)
E/PPreferred Stock
E/RReal Estate
Taxable Fixed Income

As noted above, when a report indicates that a fund invests primarily in debt, it is assigned the broad category F or M. The distrinction between taxable fixed income and fax-free fixed income is made based on the percentage allocation to long and short term municipal bonds in the most recent report. If the total allocation to municipal bonds is less than 50%, the fund is assigned to the broad category F. There is one exception. If the fund invests primarily in Build America Bonds, it is assigned to the category F/M for Taxable Municipal Bond, despite investing primarily in municipal bonds.

Having been assigned to the broad F category, the fund is further categorized based on the allocation in the most recent report.

If the allocation to any of sovereign debt, goverment agency debt or corporate debt exceeds 50%, the fund is assigned to the subcategory F/T, F/A or F/C respectively. If none of these criteria are met, the fund is assigned to the sub-category F/G for general fixed income.

Note that at the time of writing, the F/G sub-category includes funds that invest primarily in bank loan and floating rate debt.

F/GFixed Income (General)
F/TTreasury (Sovereign)
F/AGoverment Agency
F/MTaxable Municipal Bond
Tax-Free Fixed Invome

As described earlier, when a report indicates that a fund invests primarily in debt, it is assigned the broad category F or M.

The distrinction between taxable fixed income and fax-free fixed income is made based on the percentage allocation to long and short term municipal bonds in the most recent report. If the total allocation to municipal bonds is more than 50%, the fund is assigned to the broad category M.

Municipal bond funds that do not invest primarily in state specific municipal bonds are assigned to the sub-category M/US. Municipal bond funds that do invest primarily in state specific municipal bonds are assigned to a sub-category named after the state, such as M/CA.

M/USMunicipal National
M/CAMunicipal California (CA)
M/NYMunicipal New York (NY)
M/XXMunicipal for state XX
Global Funds and Precious Metals Funds

The report may indicate that a fund invests globally or invests in precious metal related securities. If that is the case, the code Gl for global and / or the code Pm is appended to the categorization code respectively. Here are some examples.

E/G/GlEquity Global
E/G/Gl/PmEquity Global Precious Metal
F/C/GlCorporate Bond Global
Portfolio Category Screening

The screener can filter based on the full category code, such as M/CA for Municipal California. It can also screen based on a broader category. For example, screening for funds with the broad category M will find national muni funds in the sub-category M/US and state specific funds in sub-categories such as M/CA and M/NY.

Benchmark Categorization

The benchmark based categorization is completely independent of the portfolio based categorization. It uses weekly distribution adjusted NAV total return over a trailing twelve month period to guess what a fund might have been invested in. It does this by comparing fund total return to that of a number of benchmarks. If the statistical correlation between fund NAV total return and at least one benchmark NAV total return is greater than 50%, the fund is associated with the benchmark with which it has the highest statistical correlation.

This has some disadvantages over the portfolio based categorization. Firstly, some funds invest in multiple asset classes and will not correlate strongly with any benchmark and will likely be unclassified. Secondly, some benchmarks are themselves highly correlated with each other and a fund might not be assigned to the most appropriate of these correlated benchmarks. For example, if short and long term treasury bonds are highly correlated for some period, a fund might be assigned to a short term treasury benchmark when the average duration of the bonds in the portfolio might indicate that the a long term treasury bond benchmark is more appropriate.

The benchmark categorization has the advantage that it classifies funds based on how NAV performed over a 12-month period and might account for holdings that are not easily discerned from the asset allocation in the most recent report, such as floating rate bonds, silver versus gold, etc. Furthermore, this initial statistical classification is the starting point for further statistical analyses, such as alpha and beta.

At the time of writing, the benchmarks are as follows.

  • Equity Large Cap Blend
  • Equity Large Cap Growth
  • Equity Large Cap Value
  • Equity Mid Cap Blend
  • Equity Mid Cap Value
  • Equity Mid Cap Growth
  • Equity Small Cap Blend
  • Equity Small Cap Growth
  • Equity Small Cap Value
  • Equity Real Estate
  • Equity Mortgage REIT
  • 1-3 Year Corporate Bond
  • Intermediate Corporate Bond
  • Corporate Bond
  • Bank Loan
  • 1-3 Year Treasury Bond
  • 3-7 Year Treasury Bond
  • 7-10 Year Treasury Bond
  • 10-20 Year Treasury Bond
  • 20+ Year Treasury Bond
  • Inflation Protected Bond
  • International Treasury Bond
  • 1-3 Year International Treasury Bond
  • Emerging Market Bond
  • MBS Fixed Rate Bond
  • GNMA Bond
  • US Preferred Stock
  • International Preferred Stock
  • Money Market
  • National Muni
  • National Short Term Muni
  • Gold
  • Silver
  • Equity Consumer Discretionary
  • Equity Consumer Staples
  • Equity Energy
  • Equity Financials
  • Equity Healthcare
  • Equity Industrials
  • Equity Infrastructure
  • Equity Materials
  • Equity Technology
  • Equity Telecommunications
  • Equity Utilities
  • Convertible Bond
  • Master Limited Partnership
  • High Yield Bond
  • Short Term High Yield Bond
  • Total Bond
  • Equity Emerging Markets

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