CAPITAL INVESTMENT FUND
- -0.56% (Class A)
- -0.38% (Class F)
- -1.88% (Class A)
- -1.81% (Class F)
Capital Investment Fund
RSIF declined -0.6% for the month of October. The structured product arbitrage strategy declined -0.6% for the month, due to a number of closed-end funds being redeemed by the Fund. The NAV discounts tend to widen after the Fund submits for a NAV redemption, and this spread is crystallized once the valuation date occurs shortly thereafter. The relative value strategy gained 0.5%, while the multi-factor and volatility strategies declined by -0.1% and -0.3%, respectively.
Volatility continues to plumb record lows, occasionally moving upward in fits and starts. Structured product spreads remain tight; however the Fund is harvesting what profits it can. The lower volatility has led to fewer market-making opportunities and tighter NAV discounts.
RSOF declined -1.9% for the month of October. The merger strategy added 0.4% in the month led by tightening of the NAV discount of Central Fund of Canada after striking a friendly deal to be taken over by Sprott. The relative value portfolio declined -0.4% due to general weakness in tracking stocks, which remain inefficiently priced. The special situations portfolio declined by -1.7% as the market shunned undervalued event-driven securities in favour of more speculative issues.
The current market offers a mixed bag of opportunities. Certain merger spreads are far too tight, while other deal spreads remain ultra-wide right up until the parties announce deal closing (and the transaction gets de-risked). This scenario offers attractive potential returns, however the harvesting of these returns tends to be bumpier, as opposed to the smooth returns offered through traditional arbitrage strategies historically.
Julian Klymochko, CFA